ATO Debt Enforcement to See Gradual Return

Regular readers of this blog will recall that we think the ATO’s current gentle approach to debt pursuit is one of the biggest factors in the current run of record low corporate insolvency numbers. The Government’s Insolvent Trading moratorium and cash injection schemes (such as JobKeeper) have finished, and yet corporate insolvencies continue to run at about 50% of pre-COVID levels.  That’s right, insolvencies have halved!  No Insolvency Cliff to see here.  And that is mainly because of the very accommodating approach from the ATO and Banks.

But will the accommodating approach of the ATO continue?

In a recent presentation, the ATO stated that they first paused debt pursuit in late 2019 for bush-fire affected communities, and then extended that approach across the board in March 2020 in response to COVID-19. Outreach gradually restarted in July 2020, they said, but with a focus on help and assistance.

We began hearing from accountants and tax agents in March 2021 that they were starting to receive letters and phone calls from the ATO mostly chasing up lodgements, rather than payments. Most of them said this was the first they heard out of the ATO since early 2020. We hear that much of the staff usually tasked with debt pursuit were moved to facilitating JobKeeper. Once that finished up in March they were moved back to debt pursuit which lines up with the increase in activity.

As of now they say they continue to pursue the lodgement of returns, have restarted issuing warnings of potential future action, and are taking firmer actions with clients who continue not to engage with them.

Looking to the future, The ATO says it expects to “start” initiating insolvencies (bankruptcies & wind ups) in September 2021.