Many businesses that have been hit by COVID-19 are slowly recovering, but the Australian Tax Office (ATO) is seeking back some of the billions of dollars it allowed them to keep as businesses braved lockdowns.
Taxpayers were grateful for the leniency extended by the ATO, for example where they could defer payments of their Business Activity Statements.
However in March 2021 the ATO resumed the imposition of penalties for certain non-compliant activities.
The ATO’s enforcement actions mean penalties for non-compliance are expected to be more prevalent for businesses refusing to engage with the ATO.
If you are expecting a long overdue visit from the ATO there is no need to panic. The key is not to ignore their calls or correspondence and ensure your contact details are up to date. Communication is the key no matter how reluctant your instincts are to do so.
A significant number of businesses used payment plans throughout the pandemic. Available is additional time to lodge overdue returns, negotiate further payment plans and remissions of interest and penalties.
Any letters of demand or notices from the ATO about which you are unsure should not be ignored.
Such notices could include a Director Penalty Notice (DPN).
If served on a company director by mail to his or her residential address that director can become personally liable for three types of company tax debts: Pay As You Go (PAYG), Superannuation Guarantee Charge (SGC) liabilities and Goods and services tax (GST). No Court action or demand letter from the ATO’s lawyers is required.
The DPN is designed to change a director’s behaviour who can no longer ignore company tax debts payment requirements. They must lodge Business Activity Statements and Instalment Activity Statements on time even if the company cannot pay the debt created.
PAYG tax (withholding) is deducted from an employee’s wages so the ATO’s view is the company has taken the employee’s money. A business must pay this money to the ATO.
PAYG Instalments are payments of income tax paid quarterly in the year towards an expected tax obligation accumulated by your business. These instalments could be varied on a Business Activity Statement if a business had been affected by Covid-19.
A company unable to meet its superannuation obligations by the due date for payment must lodge a “Superannuation guarantee charge statement” within three months or its directors will be automatically personally liable for the company’s Superannuation Guarantee Charge (SGC) liability.
Failing a response after serving a DPN the ATO may commence proceedings on a director after 21 days. The director will in certain circumstances only have 21 days to pay the debt, or appoint an administrator or liquidator to the company - the latter two very drastic steps.
Another notice a company should not ignore is a Creditor’s statutory demand. This demand is a written request for the payment of debt (such as a tax debt) under section 459E of the Corporations Act 2001 (Cth). The demand also requires the company to pay the debt, negotiate and resolve the debt so the demand is withdrawn or apply to set the demand aside within 21 days. If it doesn’t successfully it is legally presumed to be insolvent. The creditor can apply to Court seeking the company be wound up.
Failure to take timely action in any of the above circumstances can have catastrophic consequences. Any communications from the ATO can be serious and should not be ignored. The above is not legal advice. If unsure about what you have received you and what to do then seek legal advice promptly.
JUSTIN STEWART-RATTRAY, PRESIDENT, LAW SOCIETY OF SA