Have you ever wondered just how serious it is not to pay the ATO a debt you owe? We break down what might happen if you don’t pay, and how to avoid racking up even more debt.
Not paying the Australian Tax Office (ATO) IS a big deal, and recent changes mean that more people are personally liable for debts than ever before.
Individuals and businesses who don’t pay ATO debt
For an individual or business with a tax debt, the ATO will follow a number of steps to try to recoup that money.
- The ATO will send a Statement of Account, showing any amounts owed. This document should be in your myGov inbox or sent via post to your listed address.
- You’ll get an overdue debt reminder. The ATO will apply general interest charges on your unpaid amounts, until these are fully repaid. This is not tax deductible. This is where your debt can really start to add up if it is accruing interest. There are plenty of options to reach out to the ATO to discuss this.
- If the debt remains unpaid you may receive:
- Debt collection warning letter
- Refer to external debt collection agency
- Director Penalty Notice (DPN)
- Garnishee notice
- Disclosure of debt to credit reporting bureaus
- Legal action such as a bankruptcy notice.
- The ATO will use any future refunds or credits to repay the amounts you owe.
As you can see, there are multiple ways that debt can be recovered, and the implications from these can be serious.
Company Directors
As a company director, you become personally liable for your company’s unpaid amounts of:
- pay as you go withholding
- goods and services tax
- super guarantee charge.
The ATO can recover the penalty amounts from you once they issue you with a director penalty notice (DPN).
DPNs can be issued to directors of multiple companies, capturing the total value of unpaid tax and super across all related entities. The ATO can recover the amounts owed by:
- issuing garnishee notices
- offsetting any of your tax credits against the director penalties
- initiating legal recovery proceedings against you.
If you receive a DPN, we recommend contacting a liquidator or insolvency specialist ASAP. You generally only have 21 days to act and the ATO can pursue directors personally, potentially seizing assets like homes or bank accounts to recover the debt.
Your accountant may be able to provide some assistance if you receive a DPN, by recommending an insolvency assistant and gathering vital information.
What to do if you have ATO debt
The good news is that the ATO is willing to chat, and they can help you with solutions. The key is to chat to them as soon as you receive any correspondence from them to understand why they have sent it and how you can tackle any issues.
You are able to arrange a payment arrangement if you’re unable to pay the debt in full. If you are not able to come to a suitable payment arrangement, we still suggest paying regular amounts to the ATO to show a history of attempting to pay the debt. The key is to get in contact with the ATO early and work with them on resolving the debt.
You also need to ensure you are putting money aside to pay for future debts, such as quarterly BAS payments. Future tax debts are not included in current payment plans. Failure to pay your ongoing tax obligations can impact any existing payment plans in place with the ATO.
If you have any ATO debt and need some guidance, reach out to us on office@ultimate-tax.com.au
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