Update on recent ATO activity and Director Penalty Notices

You may have noticed increased media coverage of the Australian Taxation Office (ATO) recently.  You might even have received a Director Penalty Notice (DPN) informing you of personal liability for company debt.

So, what’s happening? Well, after two and half years of relief, the ATO has started to ramp up its debt-collecting activities.

Why did the ATO step back on debt recovery?

During the devastating Black Summer of 2019-20, the ATO started to wind back its firmer debt recovery actions to provide some relief to Australian individuals and businesses impacted by bushfires. This was to give them some breathing space, and an opportunity to rebuild.  

Not long after, COVID-19 hit Australian shores and had a devastating impact on the economy. In particular, health measures to combat the spread of COVID-19, such as lockdowns and border closures, were unpredictable and often damaging to Australian businesses.

To soften the economic impact on individuals and businesses, the ATO took a step back from formal debt collection. This was part of a greater Government initiative to provide economic support through measures including Jobseeker, Jobkeeper, and grants, amongst other things.

Even with this support, the last two and half years have been hard on many Australian businesses and individuals. As a result, many have struggled to maintain tax compliance with appropriate taxation lodgements and payments.

Thanks to the ATO’s softer approach to debt collection, those businesses and individuals have faced little consequence thus far.

However, outstanding tax debt in Australia is now approaching $60 billion. As a result, the Deputy Commissioner of Taxation has restarted ATO debt recovery measures, turning their attention to those who have outstanding taxation liabilities.

What is the ATO doing to collect outstanding tax?

The ATO has a number of debt-collecting actions to draw from.

In the past two months, the ATO has kickstarted its debt recovery actions by issuing over 50,000 warning letters to directors who are not taking active steps to manage their company’s tax debt.

Director Penalty Notices

If a director of a company has failed to report and/or pay company taxation liabilities, they may find themselves a recipient of a Director Penalty Notice (DPN), making that director personally liable for the company’s debt.

If you've received a DPN, contact your local RSM office. For more information regarding DPNs and their impact, please see this article by Reginald Kuek and Jacob Pantlin.

Credit Reporting Agencies

In addition, the ATO has the power to report taxpayers to Credit Reporting Agencies. In recent months, these agencies have issued hundreds of intent-to-disclose notices. The notices were sent to taxpayers who have tax liabilities more than 90 days overdue, have had no engagement with the ATO, and have at least $100,000 owed in liabilities.

Offsetting refunds or credits

In June 2022, the ATO reports that it will recommence offsetting refunds or credits that may be due to taxpayers against tax debts owed on other accounts.

Garnishee notices and statutory demands

Accounting professionals are reporting an expected increase in the issue of garnishee notices and statutory demands as other strong methods the ATO can enact if taxpayers “keep their head in the sand”.

So, what should you do to avoid personal liability for an ATO penalty?

It has been widely publicised that the ATO is looking for early engagement from businesses and individuals.

Failure to do so may ultimately lead to the ATO commencing actions against an individual or business to commence bankruptcy or liquidation proceedings.

Contact RSM for help

If you or your client have received, or do receive, a notice from the ATO, it is important to seek advice early and open the channels of communication.

RSM professionals are here to work with individuals and their advisors to assist in planning the next steps whether it be entering into payment plans with the ATO, exploring restructuring options, or ultimately placing a Company into formal insolvency. 

We understand this can be a difficult and stressful time, but we encourage you to start the conversation early.

For further information

For further information on recent ATO activity and the Director Penalty Notice, please contact your local RSM advisor.