ATO commences assault

In June 2013 the Australian Taxation Office (ATO) published its approach to taking firmer action in circumstances where taxpayers had not worked with it to meet their payment obligations. However, it seems the action has been trailing the policy until now.

Over the last six weeks, the ATO has significantly ramped up applications for winding up, which is a strong indicator of the Government’s attempt to recover unpaid revenue to plug the deficit hole. Applications by the ATO to wind up companies in April were more than double the March tally, and the May numbers reflect even higher activity.

This indicates a clear change of focus and increased enforcement for the ATO and the message is clear – get a payment plan in place ASAP, or face a real risk of being wound up.

RSM Bird Cameron has observed the following from the recent ATO activity:

1. the ATO is more aggressively pursuing debts as low as $100K

2. a winding up application is the last step the ATO will take after the ATO has exhausted all other recovery options

3. any business with an outstanding taxation debt of $100K and no current repayment arrangement in place is at risk of being wound up by the ATO.  

Frank Lo Pilato, Managing Partner – Canberra, RSM Bird Cameron said, “This is a sign of the times. In the 1980’s and 90’s most small business relied on bank or business finance of some type to fund their working capital requirements. In 2015, it is clear that many small businesses are using unpaid superannuation and GST/PAYG as an artificial form of finance.

“Where companies are wound up, unfortunately it is usually the employees who suffer most, as although other entitlements are covered under the Fair Entitlements Guarantee (FEG) scheme, unpaid superannuation is not. The loss caused by unpaid GST and PAYG obligations is also ultimately borne by the taxpayer when companies are wound up and there is no distribution to creditors.”

During the GFC, the government took a softly, softly approach. The ATO is now warning businesses that they will be taking legal action earlier, and will couple this with their other statutory powers to issue Director Penalty notices and Garnishee Notices to try to collect unpaid revenue.

Frank Lo Pilato said, “In addition to the employee and taxpayer losses, where unpaid GST, PAYG and superannuation are being used to fund trading losses, those businesses enjoy an unfair advantage over those businesses which are properly meeting their obligations.”

External administration appointments in 2014 were much lower than in the previous three years, however if the majority of ATO winding up applications on foot are successful, this could result in a significant increase in insolvency appointments nationally.

Frank Lo Pilato said, “The best opportunity of recovery for a business is to seek professional advice early. Far too many businesses are leaving it too late to seek assistance, which drastically inhibits their ability to be turned around.”

About RSM Bird Cameron: RSM Bird Cameron is the largest mid-tier accounting firm in Australia with national ownership and profit sharing and offers a full range of specialist advisory services, including business consulting and advisory, assurance and advisory, taxation consulting, corporate consulting and turnaround and insolvency. RSM Bird Cameron is a core member firm of RSM International, the seventh largest network of independent accounting and consulting firms in the world.