Time and time again we hear about efforts and systems that the Australian Taxation Office will implement to toughen their stance on the collection of their debt. The question is; Is it working? The answer to this would have to be a resounding “NO” as disclosed in a recent report to the Assistant Federal Treasurer, the total debt owed to the ATO increased to $35B as at 30 June 2014 which was a jump of almost 10% from the previous year.
The Inspector General of Taxation, Mr Ali Noroozi issued the report to the Assistant Treasurer on 3 July 2015 which included 19 recommendations to the ATO. I guess one who has such a role has no choice but to make some recommendations as only 57% of all debt is regarded as collectible with his report outlining that only $20B could be collected. Whilst collectible debt has increased in proportion, so has insolvent debt with only the disputed category falling.
The ATO has re-established their stance of collection in the last six months with their suite of options including garnishee notices, payment arrangements, director penalty notices and winding up applications. That said, is it really making a difference? You see, 64% of all insolvent debt is made up by small business and 60% of all small business have turnover less than $500,000 according to Mr Noroozi’s report. For example, when the ATO initiate the winding up of Companies, only 5% of the debt owed to the ATO is collected.
One of the recommendations put forward by Mr Noroozi was that the ATO take security by way of mortgages or bank guarantees and that the internal process for the ATO is better refined. Also, a more robust process for external debt collection agents appointed by the ATO to collect debt is initiated. Other than these, the majority of the recommendations were benign with the exception of moving the debt collection team into the compliance section (audit) of the ATO.
The ATO is not commercial in its collections and the principle issue here is that the ATO is increasing its debt by 10% on average for the last three years; which when extrapolated out would mean that as at 30 June 2015, the total debt owed to the ATO would be in the vicinity of $40B with almost half of this being written off by the ATO.
So, what does this mean for business? It means that now more than ever, businesses need to make sure that if they have a debt owing to the ATO that they need to be proactive in their approach to managing this debt. Putting it in the too hard basket just doesn’t work and potentially places the businesses and its directors at further risk.
What businesses should actually do is seek good sound advice from their qualified accountant or lawyer at the very least. This advice should be sought long before the situation gets out of hand. Whilst the ATO are getting their shop in order, the warning should now be heeded that the ATO is in the gym muscling up for their next phase of collection strategies. Businesses need to be healthier, fitter and stronger in order to ensure their survivability.