If your ATO or SRO debt is consuming your life and finances, you need someone to help you efficiently and professionally; tax debt does not disappear if you ignore it. Our goal is to resolve your tax debt and make it as stress-free as possible, and we strive to achieve financially viable outcomes for all our clients.
Even if you have liquidation, notices, proceedings or a court date, it is not too late to seek proper tax resolution advice. There are still opportunities for negotiation, no matter how bad it seems. Don’t let debt ruin your business, family, or wellbeing. The sooner you tackle your tax problem, the better the outcome will be.
If you have a tax debt, it’s crucial to understand when and how to engage with the ATO. There are often opportunities to reduce or challenge your tax debt or negotiate an arrangement with the ATO to enable you to repay your debt within your means.
But the ATO is not like a normal commercial creditor. It has unique behaviours in the way it identifies, negotiates and pursues tax debt. Amongst company directors and taxpayers more broadly, there are a lot of misunderstandings about how the ATO operates when it comes to issuing director penalty notices and collecting tax debts.
What is a Director Penalty Notice (DPN)?
A director of a company can be made personally liable for unpaid PAYG withholding liabilities, superannuation guarantee charge, and recently, GST. Before the ATO can start legal proceedings against directors to recover these liabilities, they must issue what is called a director penalty notice (DPN). If your company has a tax debt, you will already be personally liable for the debt before you receive a DPN. Once the DPN is issued to you, that is the very first step in the ATO taking proceedings against you personally to recover the company’s debt. It is the crystallisation of when the ATO may issue a statement of claim against you, meaning that the ATO is taking steps to sue you personally for your company’s debt.
What to do if you get a DPN?
If you receive a DPN, the first thing to note is that you should not ignore it or throw it in the bin. There are strict timeframes within which you can respond to a DPN.There are three different scenarios you may find yourself in when you receive a DPN:
You accept that you owe the debt
You might not be happy about it – but you know that you owe it. The most important thing to do is to act quickly to give yourself the option to enter into a payment plan before the DPN expires (21 days after it is issued). If you get into a compliant payment plan (which doesn’t mean paying the full debt, but instead paying what you can afford and what the ATO agrees to), then there won’t be any further legal action against you.
You dispute that you owe the debt
For example, you might argue that you weren’t a director during the specified time, that you never received the notice, or that the liability itself is incorrect. In these circumstances, it is preferable to seek the advice of a tax lawyer as soon as possible.
The company is no longer trading
If the company is no longer trading and is not viable, you may want to consider an event of insolvency to wind up the company.
How long do you have to respond to a DPN?
You have 21 days to take steps to comply with a standard DPN, which is the most common type of DPN. It is important to note that the 21 days starts from the issue date of the DPN. That is the day that the ATO prepares it and puts it in the post. It is not the date when you actually receive it.
Can you negotiate ATO tax debt?
In short, yes and no. The ATO is not like a general commercial creditor and does not engage in normal commercial negotiations. Tax debt is composed of core debt plus any interest and penalties. Core debt cannot be negotiated away. Whereas interest and penalties are negotiable if you meet the ATO’s legal practice requirements as to why they should be written off.
Can you enter into a payment plan with the ATO?
Yes – and it is important to understand that being compliant with the ATO doesn’t necessarily mean paying the whole debt.Compliance can also mean being in a payment plan. Once you are in a payment plan, the full amount is not due and payable, and you are compliant.
Payment plans can match your cash flow. The amount payable on a monthly basis does not have to be determined simply by dividing the full sum of the debt over by a set period of time. These terms can be negotiated with the ATO.
How long does the ATO give you to repay a tax debt?
If you get a call from the ATO, they are most likely going to ask you to pay between 20% and 50% of the debt upfront and then pay the rest between 6-12 months. That’s their standard request, though you can negotiate these terms.With a well-prepared application, you can typically get around three years to repay your tax debt. There are some exceptions to this, which can depend on the level of debt, how many defaults you’ve had and which section you’re in within the ATO, but generally you can get up to three years.
What happens if you can’t meet my ATO payment plan?
If you miss a payment, the payment plan will default. If you don’t pay any of your ongoing liabilities, the payment plan will also default. If you’re in a payment plan and the amounts are onerous or you don’t think you’ll be able to continue to comply, it is much better to be proactive and renegotiate that payment plan to meet your current cash flow and your current business viability, rather than default on the plan.
Can the ATO refuse a payment plan?
The ATO does have the ability to reject or refuse a payment plan in certain circumstances.
This can occur if, for example:
You have poor compliance history, such as if you have been non-compliant for a number of years and haven’t contacted the ATO. Your application for a payment plan requests unreasonable conditions, such as for too long a period of time.
You have previously made an unsuccessful application for remission of your tax debt which did not provide adequate detail. If the ATO refuses your payment arrangement application, it may be possible to secure a payment plan upon resubmission by offering better terms to the ATO. However, it is preferable to have a well-prepared application on the first submission to have the best chance of securing a payment arrangement that is suited to your circumstances.
Does getting into an ATO payment plan remit director penalty liability?
One of the statutory defences for director penalty liability is that the director took all reasonable steps. If you can show that the company and the director tried to engage with the tax office and enter into a payment arrangement, then it is a strong consideration for this defence.
How can Investment Plus Group help?
We can assist with your defence to debt recovery actions from the ATO and SRO, including:
- Garnishee Notices which are typically targeted to your bank accounts, employer or any debtors you may have, and requires them to pay any amounts they owe to you directly to the ATO or SRO
- Director Penalty Notices which allows the ATO to personally recover from you unpaid company debts (PAYG withholding liabilities, superannuation or GST) of which you are a director
- Statutory demands, which are a precursor to winding up applications against your company
- Bankruptcy notices, which are a precursor to creditor’s petitions or bankruptcy proceedings
- Formal notices requiring you to give information or submit to a formal interview
- Notices requiring you to give security in respect of a tax liability or an anticipated tax liability (also known as Security Bond Demands)
- Freezing orders, which are orders restraining you, and sometimes third parties, from dealing with certain assets otherwise you may be held to be in contempt
Influence the ATO & SRO with the right information
The ATO and SRO are large revenue authorities comprising of different departments and teams, each with their own policies, practices and objectives. In disputes with these authorities, it can be difficult to understand the different types of engagement options and products that may be available to you.
Before a dispute gets to the audit, objection or litigation stages, there are a range of opportunities to engage with the ATO or SRO to effectively influence the achievement of your objective. We understand how revenue authorities work, how they make decisions in the early stages of disputes and the types of information required to make these decisions.
How can we help?
If you have any questions or would like further information or you are seeking property tax advice, please feel free to contact our office via email –info@investplusaccounting.com.au or phone 02 9299 7000 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail. You can arrange a free 15 minute no obligation chat to discuss your options. Please arrange an appointment with our office by clicking here
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The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.
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