ATO Cracks Down on Unpaid Small Business Tax

The Australian Taxation Office (ATO) has ramped up its enforcement action against small businesses with unpaid tax debts. In the first seven months of 2023, the ATO started 476 wind-up proceedings against small businesses, compared with just 14 in the same period last year.

The ATO’s crackdown is part of a broader effort to recover $30 billion in overdue small business tax, which nearly doubled during the pandemic. The ATO has said that it will focus on recovering high-value and aged debts, as well as debts related to unpaid superannuation.

The ATO’s increased enforcement action and waiving of Failure to Lodge (FTL) penalties is a final warning to small businesses that they need to take their tax obligations seriously.

If you are an accountant, it is important to be aware of the ATO’s crackdown on unpaid small business tax. Although the ATO was relatively quiet during the pandemic, we are now observing the ATO agitating small businesses by issuing warnings and threats to report the taxpayer to credit reporting bureaus. In more extreme cases, we are seeing Director Penalty Notices and Statutory Demands for payment.  

Here are some tips for accountants who are helping small businesses with unpaid tax debts:

• Be proactive. If you know that a client has an unpaid tax debt, don’t wait for the ATO to come knocking. In conjunction with the client, contact the ATO to work out a payment arrangement.
• Be realistic. Don’t promise your clients that they can get out of paying their tax debt altogether. The ATO is unlikely to waive or reduce a debt, unless there are extenuating circumstances.
• Be supportive. Help your clients understand their options and make the best decision for their business. The ATO’s enforcement action can be stressful for small businesses, so it’s important to offer them support and guidance.
• Seek advice. Reach out to experts like us so your client can understand their options if the future of the business is uncertain.

In addition to the tips above, accountants can also help small businesses clients by:

• Preparing accurate tax returns and financial statements.
• Providing advice on tax planning and compliance.
• Helping small businesses to manage their cash flow.
• Providing support and guidance during difficult times.

By providing these services, accountants can help small businesses to stay on top of their tax obligations and avoid the ATO’s enforcement action.