The ATO is slowly waking from its slumber – Senate Estimates provide a glimpse into its approach in a post-pandemic Australia

As we have noted in previous communications with our networks over the last several months, one of the missing elements that has been masking financial distress in the SME space is the notable absence of debt recovery pressure from the Australian Taxation Office.  

In normal economic conditions, the ATO would be responsible for dozens of court applications to wind up companies every week. Since the start of the COVID-19 pandemic, they have only initiated just a handful of petitions nation-wide, and in those rare cases, because of concerns about fraud and misappropriation of assets.

The ATO has also held back on issuing Director Penalty Notices since the start of the pandemic, even with GST now within its reach under reforms that went live on 1 April 2020.

In the middle of 2021, we had heard that the ATO was to recommence its debt enforcement processes in October 2021; however the Delta and subsequent Omicron waves of the pandemic appear to have delayed matters.

With a federal election now just a few months away and with our east coast compatriots almost past the current Omicron wave of the pandemic, we are hearing of low unemployment rates, rising property prices and inflation figures and likely interest rate rises later this year.  

With the end of another financial year fast approaching, when will the ATO get back in track with its debt recovery operations?   

At the Senate Estimates held a few weeks ago between 14 and 18 February 2022, we garnered a small glimpse into how the ATO is likely to approach the next few months as the national economy emerges from what we hope are the most trying periods of the pandemic.

When asked what the ATO was doing about its debt recovery activities, Chris Jordan, Commissioner of Taxation, said that the ATO had “recommenced a very measured approach to debt collection.” Mr Jordan spoke about the fact that tax payers were lodging their BAS returns with details of debts owed to the ATO; however “for one reason or another they haven’t remitted amounts they’ve acknowledged they’re responsible for.”

As a result, Mr Jordan said the ATO was “instituting a process of contacting businesses individually to make sure they’re aware if the debt and trying to come to an acceptable payment arrangement at least.” Presumably, accountants we know will have experienced a more engaged level of communication with the ATO in recent times. Feedback from out network would suggest this is the case, with a more direct approach being adopted by the ATO since the start of the new year.

Along a similar line, at a recent parliamentary hearing into the unlawful underpayment of superannuation, Emma Rosenzweig, Deputy Commissioner of Superannuation, said that the ATO had held back on enforcing hefty penalties in light of the impacts of the pandemic on businesses. Ms Rosenzweig said the ATO is “starting to renew our activities in debt collection and re-engage with businesses who owe us money. And as part of that, we are thinking about the full suite of tools that we have available and when it’s appropriate to use them.”

It appears from the comments above that the ATO is preparing to initiating a firmer, but tailored, approach to debt recovery as we approach the end of the financial year. We wait with interest to see how the ATO will approach those tax payers who had a debt in existence before the pandemic and those who incurred their liabilities in connection with lockdowns and adverse pandemic-induced trading conditions.

We also wonder if a streamlined approach to the initial phase of debt recovery might be to simply issue a round of DPNs to tax payers who appear to be dormant or non-compliant with lodgement obligations. Such steps should bring directors of a viable enterprises to the table for a discussion about how to move forward. In this regard, it is important that accountants ensure that a director’s personal address is correct in the ASIC register to ensure a DPN does not slip through the cracks unnoticed.

It has always been the case that being proactive with the ATO is a prudent step for SMEs to take. This is the case now more than ever. With a debt book sitting at around $40 billion (or even more as we have read in other publications), the ATO will increasingly become more challenging to deal with as we move past the COVID-19 pandemic.

It is also now a time for those out there with unmanageable tax or superannuation debts to objectively consider their options to wind-down or liquidate their businesses before the pressure and stress builds. We are available to assist in that regard should the need arise.