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Bruce Collins, June 16 2022

The ATO is rattling its debt-collection sabres – How ready are you and your clients?

This article was originally published in CCH iKnow

After a COVID-induced hiatus, there has been a lot of recent activity from the ATO on their debt collection efforts, including warnings about the potential issue of Director Penalty Notices and referral of larger corporate tax debts to credit reference agencies, as may be seen from these links to public statements from the ATO: 

The ATO has some significant powers to deal with corporate tax debts that are not available to other company creditors, including: 

Garnishees for the whole amount to be paid to a taxpayer can trigger severe cashflow impacts for businesses, so this is an area where prompt action needs to be taken to engage with the ATO. However, a person who does not comply with a valid garnishee notice without a lawful excuse commits an offence and may be liable for a penalty of 20 penalty units (a penalty unit is $222 from 1 July 2020) – so any entity receiving such a garnishee would be wise to seek advice about whether they should comply or, if not, urgently seek relief from the courts. 

There are limited defences (illness/other ‘good’ reason or having taken ‘reasonable steps’) available against DPN liability – which must be raised within 60 days of the issue of the DPN or of the recovery of any of the DPN debt (many advisors miss that last point, so ATO crediting of refunds can be a particular trigger for raising DPN defences). The case law isn’t overly supportive of directors raising such defences – perhaps because the ATO may be receptive to those defences that are well made out and cases like that don’t end in court. Having seen a fair number of DPN cases where those defences haven’t been raised in time or not appropriately meeting the onus of proof, this is an area where advisors may want to obtain expert assistance. 

“… a person… who is concerned in, or takes part in, the management of the corporation shall be deemed to have committed the taxation offence and is punishable accordingly.”

As a result, if a director (express or de facto) causes a company to commit a taxation offence or offences, then they can also be made liable for the relevant fines and relevant reparation orders made against that company. 

Aside from the ‘special powers’ of the ATO, there are a wide range of other general law issues that can affect the collection of tax debts, including: 

Overall, we note that the ATO’s increased pace and scale of activity is likely to lead to more work for tax agents and tax lawyers. We are looking forward to sharing insights on the above issues and related topics at a forthcoming webinar. We hope that practitioners can join us for the discussion.

How can Tax Controversy Partners help you?

If you a director of a company that is struggling to meet your taxation obligations, it is important that you seek professional advice to assist in arranging payment plans and open communication with the ATO. If you receive a Director Penalty Notice, it is vitally important that you urgently get competent legal advice on your obligations and any time-critical relevant defences that may apply.

At Tax Controversy Partners, our experienced lawyers can assist you in contacting the ATO on your behalf and arranging payment plans for outstanding debt and in dealing with Director Penalty Notices. Please contact us using our online contact form, via email at admin@taxcontroverypartners.com.au or by phone at 02 8513 3813.

Bruce Collins, Founder and Principal Solicitor at Tax Controversy Partners Pty Ltd will be running a webinar “The Risks of Director Penalty Notices and Corporate Insolvencies for Tax Debts” with CCH Learning on Thursday 23 June at 10.30am. Please join the discussion by registering here.

Written by

Bruce Collins


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