Tax Distress Rising as ATO Takes Aim at Directors

25/08/2023

Directors feel the pinch as tax debts trigger clampdown

The Australian Taxation Office (ATO) has intensified its efforts to hold company directors accountable for unpaid tax debts to ensure that businesses fulfill their tax obligations. This concerted effort raises important questions about the responsibilities of company directors and the potential implications for businesses.

The crackdown on directors

Under the director penalty regime, directors can be held personally liable for their company's unpaid Pay As You Go (PAYG) withholding and Goods and Services Tax (GST) liabilities and receive a director penalty notice (DPN).

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Directors feel the pinch as tax debts trigger clampdown Furthermore, the regime has been extended to include unpaid Superannuation Guarantee (SG) contributions.

Implications for directors

The ATO's crackdown means that directors' personal assets are at risk if their businesses fail to meet tax obligations. It is therefore of increasing importance that directors educate themselves on what their requirements are and make sure they are equipped to fulfill their obligations regarding company taxes.

Impact on businesses

Unfortunately, this clampdown coincides with the ongoing financial challenges SMEs have faced since the lockdowns. Many businesses are still trying to recover from losses when commerce was shut down at the height of the pandemic, making it even more difficult to keep up with paying off accrued tax debts.

In a recent Accountants Daily article, Melbourne-based consultant Tax Assure stated that companies in financial distress tripled when the ATO began its course to pursue directors. Moreover, they also mentioned that the average tax debt had doubled in 12 months, prompting the ATO to hand out even more director penalty notices.

Once a director receives a DPN, action needs to be taken as further missed deadlines will only compound the problem.

What options are there for Directors and SMEs

Maintaining communication with the ATO is important because this shows to the ATO that a company is not trying to evade their tax obligations. It may make a difference when the ATO sees that a company is doing its best to be tax compliant.

In some cases, an ATO payment plan can be arranged to make tax compliance much more manageable.

But in times when a company doesn’t meet the qualifications for an ATO payment plan, taking a tax debt loan can be another option. Most banks won’t provide a loan whilst there is an ATO debt outstanding so that is where a private lender might be able to assist. A tax debt loan is a short-term financial solution tailored to pay off an SME’s outstanding tax debt to avoid incurring additional penalties for missed deadlines, while at the same time, providing a more manageable payment option for businesses.

Another benefit with this type of loan is that a company can also have the option to consolidate their loans and/or access some additional working capital. So rather than worry about keeping up with PAYG, GST, Superannuation liabilities and any other outstanding business finance, all these can be lumped into just one loan making it easier to track.

How can PMA help

Private Mortgages Australia specialises in providing finance solutions for SME clients. These solutions include ATO tax debt clearance loans secured against freehold, which we have provided to our clients who were unable to arrange an ATO payment plan, or those who were unable to get a bank loan because of their outstanding ATO debt (check out a case study here). In some cases, a company may need to either refinance an existing loan or to consolidate multiple loans in their effort to pay off their outstanding ATO debts. PMA has been able to provide finance solutions for these cases as well.

If you’re an owner or a director of a company with outstanding ATO debt and are looking for alternative solutions to pay off outstanding liabilities with the ATO quickly, submit a scenario and we’ll be happy to take a look at your situation.

If you are a broker or an accountant and have clients who need finance solutions to help them with ATO compliance, feel free to contact us or you can complete our Quick App form here (< 10 mins).

PMA endeavors to make the loan application process as quick as possible and can settle within 5 days upon receipt of all outstanding information.