Client Health Checks and the ATO Closing in on Small Business Debt

The Australian Taxation Office (ATO) continues to pursue the recovery of unpaid tax debt and superannuation, particularly from small to medium businesses.

The ATO has recently visited approximately 400 small businesses on the Sunshine Coast and is rolling out visits to 10,000 businesses per year across Australia over the next three (3) to four (4) years in order to crackdown on the black (cash) economy.

One of the biggest sources of financial stress is business debts, especially unpaid taxation and superannuation. The ATO is often the largest creditor we encounter when dealing with insolvency administrations. The most recent reported statistics indicate approximately $24 billion is owed to the ATO, with $15.1 billion of this debt relating to small businesses.

Why is this important to you and your clients?

It is likely some of your clients will have unpaid tax debt and superannuation.

The ATO continue to use its resources and debt recovery tools to collect this debt. Ultimately, this causes stress and pressure on businesses, individuals and families.

We continue to see an increase in the use of garnishee notices by the ATO to recover debts owed. This can have a crippling effect on cash flow and working capital.

From 1 July 2019, single touch payroll (STP) is now compulsory for all Australian employers.

This is likely to increase pressure on small businesses, from a cost compliance perspective and now that the ATO has real-time access to information regarding wages, allowances, deductions, PAYG withholding and superannuation payable, the ATO will be able to identify and take steps to recover debt quicker than ever.

In addition, as reported in our earlier Newsletters, from March 2019 the ATO has increased powers to recover unpaid superannuation for Company debts from Directors under the Director Penalty Notice (DPN) regime. Unpaid superannuation amounts must be reported by their due date for the Director to have any opportunity to avoid personal liability, that is, within 28 days of the end of each quarter and not the former three (3) months from the due date.

The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 (Phoenixing Bill) which has now been reintroduced into Parliament proposes to give ASIC, liquidators and the ATO significant powers designed to help curtail phoenix activities and prosecute culpable directors and associated persons. The reform extends to director liability provisions for unpaid PAYG withholding amounts and superannuation guarantee charges to GST. The ATO would also obtain more power to withhold tax refunds providing there are other outstanding ATO lodgements or disclosures.

What can you do to help your clients?

Firstly, are your clients’ compliant with STP, BAS and superannuation reporting? This can help mitigate personal risk and exposure to them.

Secondly, is a financial health check part of your review with your clients and procedures?

Whilst most of us are not qualified to provide professional personal health advice and counselling, we can help them with financial advice, which can invariably assist.

Many businesses and people are struggling with the pressure of debt, including unpaid tax and superannuation debts. This has a significant impact on their health and wellbeing.

Much of the stress and anxiety comes from not knowing how to tackle the debt problems, not knowing the options available to them or the impact an insolvency can have on them, including what happens to assets (including business, personal and family assets), their income, etc.

Early intervention is crucial to help clients. It is important as professional advisors that we identify clients that may be struggling with debt and provide advice, solutions and strategies to assist them through difficult situations.

At C&D, we specialise in assisting businesses in understanding and exploring all their options when facing financial pressure. Contact us on 1300 023 782 or email to arrange a free, confidential meeting to discuss any financial difficulties your clients may be experiencing.