Collecting outstanding taxes has become an ongoing challenge for the ATO. The amount of debt the ATO has to collect has continued to rise in recent years.
With this in mind, the ATO has altered its approach and, among other things, will be taking legal action earlier when warranted. This means initiating bankruptcy and wind-up action where there is evidence that a taxpayer is insolvent. The ATO will also look to use other statutory powers where businesses have failed to pay employee superannuation entitlements or pay amounts held in trust.
In the past, the ATO has waited for a taxpayer’s debt to increase to a critical level before taking any legal action. This has resulted in taxpayers being in debt by an average of over $300,000 before bankruptcy proceedings were commenced.
As for corporates, the average debt to the ATO has been around $340,000 where the ATO would commence wind-up procedures, compared to other creditors who initiated the wind-up process when the debt to the ATO was an average of $93,000.
The takeaway here is that the ATO plans to intervene earlier to prevent tax debts from escalating beyond people’s control. If you have any tax debts you wish to discuss or are interested in tax planning, give us a call today on 02 9299 7044.