Company directors beware ... the Australian Tax Office (ATO) is coming for you.
To recover debt, the ATO has turned its focus toward company directors using the ATO as a “low-interest loan facility”, with its sights set on billions of dollars accrued during the COVID pandemic.
Deputy commissioner of the Australian Taxation Office (ATO) for lodge and pay, Vivek Chaudhary, expressed concern over rising corporate and individual debts at the recent 2023 Tax Institute Summit.
According to Chaudhary, tax debt has surged 89% to A$50.2 billion as of June 2023, primarily fuelled by the pandemic. Businesses contribute 90% to this total, with small businesses owing more than A$33 billion of the A$45 billion collectable debt.
Chaudhary noted more than A$5 billion remains owed by companies meeting the criteria for Director Penalty Notices (DPNs). He criticised businesses for treating the ATO as a "low-interest loan facility" and cited the effectiveness of disclosing business tax debts as a means of engagement.
Directors could be made liable for tax debt
The ATO has the ability to convert a company's tax debt, involving PAYG, superannuation or GST, into the director’s personal liability. It also can disclose business tax debt to registered credit reporting bureaus.
Last year, 23,246 DPNs were issued, compared to 18,500 in the 2022 calendar year, marking an increase in debt recovery actions.
Revive Financial's head of Business Restructuring & Insolvency Jarvis Archer suggested that the ATO's strict approach had led to a surge in insolvency inquiries.
He attributed much of the small business debt to pandemic-induced lockdowns and noted that the ATO had originally advised businesses to withhold payment.
Finally, Chaudhary indicated that the ATO didn't initiate wind-up proceedings lightly but intended to continue ramping up legal recovery actions.
According to the Australian Securities & Investments Commission, company insolvencies increased 62% in the year to June 2023, reaching 7,942 from 4,912 the previous year.