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ATO Interest on Tax Debt and Negotiation

ATO Interest on Tax Debt and Negotiation

When it comes to managing taxes, whether you are a business owner, individual, or sole trader, it can quickly turn into a frustrating and complex process. Even when you maintain your taxes, some cash-flow problems can prevent you from paying tax on time.

Often, people leave the tax payment for later and neglect taking proper measures to make the process manageable, resulting in tax debts. However, having an outstanding tax payment means the Australian Taxation Office (ATO) can take the necessary steps to recover the unpaid tax debt.

Follow-up reminders and notices might not seem like a big deal, but this can quickly lead to legal actions and wind-up orders. It is essential to be aware of the procedures and steps ATO can take in order to ensure you take the appropriate actions to prevent the situation from going worse.

Man doing his taxes

Tax Debt for Sole Traders and Individuals

If you are an individual or sole trader, you can determine the amount of ATO tax debt you owe by using your myGov account linked to the ATO. You can easily check for the amount due and the due date to stay updated on your taxes.

As an individual who is getting paid by an employer, you might be required to make PAYG (Pay As You Go) instalments. Your tax payment would be calculated from your income of last year, and ATO will notify you how often the payment should be made.

Tax Debt for Businesses

If you are a business owner, you can determine your ATO tax debt through your ATO business portal. It highlights all the details, including the amount due, due date, and reference number. You can also determine your taxes by checking your last income tax assessment or calling ATO.

What Steps Does ATO Take If You Fail to Pay the Tax Debt?

Failing to pay the tax debt by the due date will result in the addition of a General Interest Charge (GIC) automatically by the ATO. The ATO tax debt would continue to increase if you still leave it unpaid. It is essential to keep in mind that this interest amount is calculated daily on the outstanding amount and periodically included in the account.

There are some exceptions in which the ATO might cancel or reduce the debt interest. You will be required to make a strong case regarding why it is reasonable and fair to cancel or reduce the interest depending on your circumstance.

External Debt Collection Agencies

If you fail to pay your tax debt, ATO assigns external debt collection agencies on the case to gather superannuation debts, activity statements, and income tax. However, referring to the ATO debt to these agencies doesn’t have an impact on the credit rating.

According to the ATO website:

  • These collection agencies don’t take any commissions
  • The debt stays unpaid, which means the company doesn’t ‘sell’ the ATO debt
  • It ensures the agencies take professional steps to recover the payment
  • The collection agencies have to comply with the ATO guidelines
  • The collection agencies must follow all privacy requirements and security requirements specified by the government

You will be sent a written notification by the external debt collection agency before they call you. If you fail to respond by the due date highlighted in the letter, the agency will try to get in touch with you or your authorised contactor for the next steps.

Failing To Reach an Agreement

In case an agreement hasn’t been reached, and you still haven’t paid the ATO tax debt, ATO will take further action. These measures include the following:

Garnishee Notices: The ATO, using a garnishee notice, can get a business or an individual holding the money for you, for instance, your bank, or the individual or business that might hold your money in the future to get them to directly pay the amount to decrease the amount of debt you owe.

Director Penalty Notice: Through the Director Penalty Notice (DPN), ATO can personally pursue directors for any taxation debt. If the business fails to meet the PAYG, Super Guarantee Charge (SGC), Goods and Services Tax (GST) tax obligations, then ATO has the right to recover the unpaid amount from the director of the organisation personally. The DPN applies to both nonreported and reported obligations.

ATO has not issued any DPN throughout the pandemic, but things are expected to change as businesses are returning to their normal operations. It is crucial to managing any ATO tax debt because ATO will soon start recovering outstanding tax debt. The directors of the companies won’t be able to hide behind cooperation protection.

What does that mean? It means that you might be putting your house or other personal assets on the line. Moreover, once the DPN has been issued and the time to comply has been expired, the DPN can’t be revoked by ATO. Therefore, you must act quickly as soon as you receive a DPN.

When the Director Penalty Notice has been issued, it makes it possible for ATO to begin any appropriate legal proceedings to recover the unpaid tax debt.

After all these attempts, if the ATO can still collect the debt you owe, it can take further steps according to the situation. These steps might include:

  • Taking measures to wind up the organisation if the company failed to make the payments for the tax debt or enters the payment plan.
  • Delivering statutory demand that requires the organisation to pay all of its debt or begin a 21 days payment plan.
  • Filing a petition of creditors that can result in you going bankrupt
  • Filling summons or claims.

Transparency and communication are integral to deal with ATO tax debt and are becoming increasingly important the more they have progressed in the debt recovery process. There are numerous reasons why business owners face issues to resolve the tax debt problem.

Non-compliance, previous tax disputes, financial problems, and cash flow issues can create obstacles to successfully managing the ATO tax debt. Bankruptcy Advisory Center can help you every step of the way to resolve the pending tax debt. Our specialists can guide you and ensure that you are able to make the payments without additional problems.


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