FRYING PANS AND FIRES – ATO DEBT COLLECTION, AND PAYMENT ARRANGEMENTS
30 Mar 2022
After lying dormant for some time, the ATO has started to ramp up its debt collection. See this article in Accountants Daily: link.
The focus seems to be on:
Director Penalty Notice liability of directors for company tax debts.
Reporting company tax debts to credit reporting agencies.
The knee-jerk reaction for many directors is to enter a payment arrangement with the ATO.
That could be useful, if it is part of a wider strategy to for a viable and solvent business. See Indicators-of-Insolvency.
Otherwise, a payment arrangement could not only simply be re-arranging the deckchairs on the Titanic, but it could also expose a Director to liability for tax debts where no such liability already existed.
A Director could become liable for part or whole of some of the instalment payments made to the ATO, if (for example) within 6 months of each payment the Company enters liquidation, and the liquidator claws the payment back from the ATO as an unfair preference. In those circumstances, the ATO could have a claim against the Director for the same amount. See s588FGA Corporations Act 2001 and Article - Beware the ATO Payment Plan.
A payment plan could allow the company to temporarily stave off other creditors, but in the meantime more tax debts (or other debts) are incurred which cannot be paid, exposing a Director to potential claims for Insolvent Trading.
As always, we suggest that the ATO should not be ignored and timely, active engagement is key.
But before decisions are made, even if they are urgent, the downstream consequences should also be considered.
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Note: The above is a summary for general information purposes only. It is not intended to be comprehensive or constitute legal advice. You should seek formal legal or other professional advice in relation to your particular circumstances before relying on the content of this article.
Author: Jason De Silva (Director: Business Advisory, Insolvency and Litigation)
Email: [email protected]
Murfett Legal is a leading law firm in WA, providing services in litigation, corporate and commercial, employment and workplace relations, insolvency, debt collection, business restructuring, Wills & estates, property, leasing, settlements, liquor licensing and intellectual property.