ATO turning to creative methods to manage growing debt book
The ATO is increasingly employing non-traditional methods to crack down on expanding tax debts including garnishee notices, says an insolvency specialist.
The Tax Office continues to be highly active with its debt collection activities from businesses and is increasingly using more creative methods to encourage businesses to pay back debts, according to Wexted, partner, Chris Sequeira.
Speaking in an upcoming Under the Hood podcast, Sequeira said the ATO was increasingly relying on methods such as issuing garnishee notices, increasing its reporting of debts to credit reporting bureaus and issuing lockdown director penalty notices (DPNs).
"The ATO is also getting more creative. It's issuing more garnishee notices to banks and debtors," he said.
With many of these garnishee notices eating up cash for businesses, in some cases this is driving them to make decisions about a formal appointment, he explained.
Sequeira said there has also been an increased incidence of the ATO reporting outstanding ATO debt to credit reporting bureaus.
The latest CreditorWatch data for April reveals that there was a total of 30,214 records of businesses with ATO defaults of $100k or more.
There was a significant surge in debts that were first reported to the credit reporting bureau in October 2023 with the total number of businesses with debts continuing to climb steadily since.
In its Business Risk Index report for March, CreditorWatch said in recent months there had been a considerable decline in the number of businesses that are paying off their tax debts or entering into a payment plan with the ATO.
Sequeira explained that where businesses are reported to a credit agency, it impacts their credit rating and ability to seek an overdraft and ability to refinance.
"Your cost of capital or borrowing will increase," he said.
He also outlined that there has been an increase incidence in the use of lockdown DPNs.
"This is where you're not afforded the opportunity to take an insolvency option and you're made personally liable for your company or organisation's debt," he said.
Businesses that have outstanding super guarantee charges and PAYG withholding debts also continue to be a strong focus for the ATO, said Sequeira, with the ATO targeting these businesses through director penalty notices (DPNs).
The Tax Office issued a total of 26,702 DPNs during the 2023-24 year, with 8,710 of these relating to unpaid super.
Sequeira noted that while there were over 26,000 individual notices issued during the previous financial year, these DPNs only accounted for $4.4 billion out of the total $52.8 billion of collectable debt that was owed to the ATO at 30 June 2024.
ATO commissioner Rob Heferen recently revealed that the ATO's debt book has climbed to its largest ever size at over $105 billion in total.
"We estimate that just under half of that $105.1 billion is made up of collectable debt. That $46.4 billion is almost double the $26.5 billion of collectable debt owed in 2019," Heferen said, speaking at the UNSW ATAX International Conference on Tax Administration.
Sequeira said all taxpayers should be concerned about the increasing amount of debt owed to the ATO as it takes money away from services provided by the government.
"It also means a heavier burden on individual taxpayers," said Sequeira.
"It all of us want everyone to be paying their fair share of tax."
