ATO Ramping Up Debt Collection

The ATO Tax Commissioner and the Second Commissioner have recently given speeches to the Tax Institute and the Tax Teachers Association. Both speeches point to a new and more aggressive approach to debt collection.

The attitude adjustment comes on the back of the ATO’s desire to achieve willing participation in the tax and superannuation systems.

Following a consultative process, stakeholders told the ATO that willing compliance may be achieved by:

  • Improved ATO service and efficiency
  • A simplified user experience
  • Simpler compliance and removal of red tape
  • More certainly and clearer communication
  • Security of data
  • Fair and respectful treatment
  • The ATO acting against those not complying

Based on the above, “Reinventing the ATO Blueprint” was developed and will guide the tax office in the coming years.

Acting Against Those Not Complying

The Commissioners acknowledge that litigation remains an important component of the ATO’s dispute and debt management strategy. They also noted that despite its increased efforts, the amount of outstanding debt has continued to rise in recent years.

As a result, the ATO is making changes to its debt recovery strategy. 

While the ATO says it will increase help and support for people who are trying to do the right thing, including giving them a more empathetic hearing and a more flexible and tailored approach to formulating payment arrangements, it does intend to:

  • Intervene earlier to prevent debts from escalating beyond control
  • Take legal action earlier where there is evidence a taxpayer is insolvent and should be placed into company liquidation or bankruptcy
  • Use is power earlier where a business has failed to pay its employees superannuation entitlements

The Commissioners point out that in the past, the ATO had waited for a taxpayer’s debt to escalate on average, to over $300,000 & $340,000 before initiating bankruptcy or company liquidation proceedings respectively.

The Commissioner went to the effort of comparing this practice against the practices of commercial creditors who take action at around $35,000 for individuals and $93,000 for companies.

So What Will Happen Next?

We have already seen the introduction of strengthened personal liability for company directors through the Director Penalty Regime – but what is going to happen next?

At what level of debt will the ATO now act to pursue individuals into bankruptcy and companies into liquidation? Will they act as early as commercial creditors?

Will we see more companies forced into liquidation? Certainly in recent weeks, there has been a dramatic rise in the number of winding up applications lodged by the ATO.

Speeches of the Tax Commissioners, Chris Jordan and Andrew Mills


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