Tax debts jump – and the ATO is looking to collect

The Australian Tax Office has revealed a 21% spike in the level of outstanding tax debt, and has flagged that collecting on tax debts will be a “focus area” as the economy recovers in 2011.

The ATO’s annual report shows total collectable debt increased from $12.15 billion in 2008-09 to $14.7 billion in 2009-10. In the previous year, the level of debt rose 11.6%.

While the figures do not break down what proportion of that is owed by SMEs, the report suggests much of the ATO’s focus has been on helping small businesses in the last 12 to 18 months.

Indeed, the spike in outstanding debt is not surprising when you consider the ATO had 113,259 payment arrangements worth $1.7 billion in place with small businesses (free of general interest charges). The ATO also granted 6,573 deferred due dates for business activity statement payments.

However, the ATO, which has won praise for its highly sympathetic stand on SME debt, appears set to start calling in outstanding amounts as the recovering economy allows SMEs to stabilise their businesses.

“We continued to take an empathetic approach to viable small businesses experiencing short-term difficulties. Tailored assistance we provided included 12-month interest-free payment arrangements, and deferred due dates for activity statement payments,” the report states.

“However, the level of collectable debt rose and will need to be a focus area as the economy recovers.”

Cliff Sanderson, managing director of Restructuring Works, says the ATO has already started this process.

“Just prior to the election – which was a bit surprising actually – we started seeing more aggressive actions from the Tax Office.”

Sanderson says the ATO is using two big “clubs” against non-payers: the director’s penalty notice, which holds a director personally liable for company debts; and the garnishee order, which is sent to a non-payer’s bank, requesting that any funds in the account be used to pay tax debts.

“The ATO is being a lot less understanding with the excuses that directors usually give,” he says.

Those particularly in the gun are directors who have failed to lodge BAS statements over an extended period, and those who are repeat offenders.

“If you’ve had a previous agreement for a repayment scheme, and you breach it, then they are going to be a lot less understanding the next time around,” Sanderson says.

His advice for SMEs with tax debts outstanding is to try and clear them up as quickly as possible, or at the very least make sure you meet your payment obligations.

“If you’ve got a repayment scheme, stick with it, because it’s not going to get any better.”