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The ATO talks about SME debt problems and the new DPN laws

Aug 28, 2012 | Written by Cliff Sanderson

Earlier this month, the Commissioner of Taxation gave a talk to the Council of Small Business of Australia.  There were two topics of particular interest for me.  Firstly he addressed the topic of the application of the new DPN laws in regard to phoenix company activity and, secondly, a discussion on the ATO approach to companies struggling to pay their tax debts.

The new DPN laws and Phoenix Companies

So in late June 2012, new laws were passed that greatly increased the ATO’s ability to make directors personally liable for company PAYG and Super Guarantee debts. You can read the details here and here, but the main thrust is that the personal liability is now automatic if a company has not been lodging its Tax Returns within 3 months of the due date.  It was a massive move towards personal liability for company directors.  The ATO got the new legislation through Parliament on the reasoning that it was needed to stop Phoenix Company activity.  BUT the actual legislation did not restrict the law to Phoenix company situations – it applies to all companies.  In the speech the Commissioner noted that:

We continue to focus on fraudulent phoenix activity – that involves a company intentionally accumulating debts to improve cash flow or wealth and then liquidating to avoid paying the debt.  New legislation that commenced this year increases our ability to address this behaviour by making company directors of phoenix companies more accountable for the pay as you go withholding and superannuation debts of their companies.”

Hopefully this mean that the ATO will only use the new powers in a situation involving Phoenix Companies – we’ll wait and see.

ATO approach to tax debt problems

The Commissioner also commented on the ATO approach to enforcement and payment arrangements:

“Our overall approach to managing and collecting tax debt focuses on early intervention – so taxpayers and the ATO can work together early to put a plan in place to allow the business to better manage its tax and super debts….It is important to note that we have a responsibility to ensure we assist viable businesses and tailor our support to match their individual circumstances. Conversely, if a business is not viable we have a responsibility to ensure that viable businesses are not disadvantaged by unfair trading.  If taxpayers choose not to engage with us we will use stronger measures where appropriate. Generally, we will provide taxpayers with the opportunity to clear their debt before we take firmer action and always encourage taxpayers to engage with us – even if their case has been escalated for firmer action. This supports a level playing field for all taxpayers”

Do I hear you cynics out their taking the above with a grain of salt?  What is my experience?  Well, in the vast majority of cases we have found the ATO to be understanding and accommodating.  Yes, really.

Cliff Sanderson

Cliff Sanderson