What’s your tax debt deficit right now? For many, it’s not looking good, thanks to years of riding the unforgiving wave of COVID-19.
While it’s fair to say that the ATO was pretty lenient during the eye of the storm, giving businesses tax debt breathing space as they dealt with staying afloat, since August 2021, they’ve switched gears, making collection of these debts a priority.
For many affected business owners, this has resulted in stress levels rising as ATO warning letters land in their post pile. If you’ve been a recipient or think one could be headed your way, don't do nothing. You have options!
ATO Warning Letter one - CRBs
ATO warning letters started appearing in August 2021. This resulted from the ATO's new powers to claw back debts owed by businesses under the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019.
Under this revised legislation, the ATO can now refer small to medium businesses with tax debts of $100,000 or more to credit reporting bureaus (CRBs) for further action. The outcome of which ultimately means a black mark on your credit score.
But this negative consequence doesn’t happen off the bat. Instead, the bright orange ATO warning letters simply issue a notice of intent stating: ‘Act now or your tax debt will be reported to credit reporting bureaus’, If you contact the ATO to discuss and manage your debt within the 28 day period given, you have the opportunity to prevent CRB disclosure.
ATO Warning Letter Two - DPN
After sending out thousands of these CRB warnings in the last seven months, a new type of orange ATO warning letter has started arriving in the post.
This new type of orange ATO warning letter is equally intimidating for business owners. It informs you of your potential personal liability for company tax debts under the director penalty notice (DPN) program.
It has been reported that over 50,000 of these new warning letters have been sent out since the start of March - a significant amount in a very short period of time.
But while a DPN ATO warning letter may be alarming to receive, it’s important to remember that it’s only a warning or notice of intent. Like the CRB letter, you still have time to take back control and avoid becoming personally liable for your company's tax debt.
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Don't See Orange - See Options!
While it’s intended to make you sit up and take notice, the letter itself isn’t a flat-out threat. It’s also an olive branch, giving you options for what you can do next to prevent a DPN from being issued.
These options include:
- Arranging for your company to pay its debts:
- Entering into an ATO payment plan; or
- Contacting the ATO to discuss options.
The first two options are great if your business is in a position to either pay your tax debts in full or you can figure out a realistic amount to pay back each month.
Unfortunately, we know only too well that these two options aren’t always possible. You may still be struggling with debt coming at you from many angles or ongoing cash flow issues that just don’t give you room to move.
More Ways to Take Back Control
The good news is, like in any situation when you’re struggling financially, there are always more options to help you take back control and avoid legal action.
If your company is unable to pay its tax debt in full, here are two additional options we recommend to business owners:
1. Liquidate to Avoid Liability
If you’re unable to pay your tax debts in full after being sent a warning letter, and you feel like your company is done, you can choose to liquidate to avoid personal liability as a director. Our liquidation process costs as little as $5,800.
While liquidation may seem like something you want to avoid, it can actually lead to better outcomes for both you and your creditors. It can also provide immediate relief from stress and the emotional fog that’s been hanging over you.
2. Restructure to Save Your Business
If you can’t pay your mounting tax debts but you want to save your business, you can reduce business debts using one of a number of available restructuring options, particularly:
Small Business Restructuring Plan (SBRP)
An SBRP is essentially a streamlined process to help small businesses reduce their ATO and other debts. We've assisted business owners reduce ATO debts by 75% using this process. We love this option as the directors retain control, the costs and risks are lower and the ATO has been supportive of genuine restructuring efforts - meaning successful outcomes for clients.
You must be trading your small business in a company, have liabilities under $1 million, have liabilities under $1 million, have super paid in full, and ATO returns up to date to be eligible for an SBRP. Find out more about the SBRP process.
Voluntary Administration / Deed of Company Arrangement (DOCA)
Voluntary administration involves placing your business into the hands of an independent administrator. They assess your finances and options and work with you to develop a plan that generates the best outcomes for you and your creditors – including the ATO.
It typically involves drawing up a Deed of Company Arrangement or DOCA. This formal document sets out the ‘deal’ you intend to propose to creditors.
Both of these options can help you reduce your debt to an affordable level – which can be as little as 25c/$ or below.
See an ATO Letter - Take Action!
So, the moral of this blog post is, if you receive an ATO warning letter threatening a DPN, don’t sit on it and stress. Instead, reach out to the ATO or a restructuring and insolvency specialist, like us, to take back control and turn your debt monster into a mouse.
In the meantime, make sure you bring all your ATO lodgements up to date to avoid further penalties.
Have you received an ATO warning letter? Or are you worried one might appear in the post due to mounting tax debt? See how we can help with our Instant Online Assessment. Alternatively, you can call us on 1800 861 247 to speak with our team of specialists today for professional, non-judgemental support and advice. If your business uses XERO for its accounting, you can receive an instant score and suggested actions based on your personal situation, using our free Business Viability Tool.
