ATO - Change in Debt Collection Approach - Directors Beware!

As the Government shifts its COVID 19 response from cash injection to cash recovery, we were interested to listen to a presentation from the Australian Taxation Office (“ATO”) on their debt collection strategy as we navigate our way through the pandemic.

According to the ATO presenter, the ATO has instigated only four (4) windings up since March 2020. It is no wonder that the ATO debt levels are reported to be in the vicinity of $40billion!

We knew the ATO had taken its foot off the pedal in terms of debt collection, but we were somewhat surprised by the extent.
 
Going forward, the ATO presenter indicated a shift in debt recovery focus. They advised that director penalty
notices would be preferred to the traditional winding up application/creditor driven Court Liquidation.

The attractiveness to the ATO of the DPN process is clear:

• No court fees are incurred.
• DPNs can be issued internally, without the need for legal services.
• DPNs pierce the corporate veil, such that the ATO can look to recover personally from directors if there is non compliance to the DPN, giving the ATO access to other assets that would be beyond its reach through the normal Court Liquidation process.
• If the Directors respond within time and elect to appoint an external administrator, the ATO’s function of “tidying up” of the corporate landscape by liquidating insolvent entities is achieved indirectly.

Key Take Aways for Corporate Advisers

• Ensure the directors’ personal address details are up to date on the ASIC record – this is the address that the ATO will use to send the DPN – and directors only have twenty-one (21) days from the date of the notice to take up one of the four options:

- Pay the debt;

- Come to a payment arrangement with the ATO;

- Appoint an Administrator; or

- Wind up the company.

•  Ensure lodgements for BAS are up to date – if lodgements are more than two (2) months late, directors are personally liable for the PAYG and GST arising in that BAS period (as you may be aware, similar provisions exist for non-payment and late lodgement of superannuation returns).

• Educate your clients on the risks to their personal assets for failing to lodge BAS returns.

If you need any assistance on the options available to your clients in the event they receive a Director Penalty Notice from the ATO, we are only a phone call away!