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ATO gets tough on tax collections

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After the GFC the ATO was very generous in extending payment arrangements to struggling companies and it also went easy on its use of its debt collection tools – Director Penalty NoticesGarnishees and Wind Up Notices.  Those times are over.  I’ve spent some time recently reviewing the ATO annual reports since 2008 (yes, really!) and it reveals a much tougher stance by the ATO in 2010/11.Firstly, some background.  Following the GFC the ATO implemented a policy to go easy on corporate Australia.  Correct decision and they did it well.  They agreed to over 600,000 interest free payment arrangements.  But, as you would expect, collections drifting out and bad debts increased significantly.  The amount of “Insolvency Debt” on the ATO books (being money owed by bankrupts or companies in liquidation) has ballooned from $2.2 billion in 2008 to $5.3 billion as at June 2011.  And that’s what is on the books.  Further amounts were written off – a further $1.7 billion in 2010 and big leap in 2011 to $5.3 billion.  Ouch, yes, but not too bad seeing as total collections in 2011 were $273 billion.

So, understandably, the ATO has been far more aggressive in pursuing tax debts in recent times.  The evidence:

  • I’ve blogged many times that since mid-2010 we have again been receiving regular calls from Directors who have received Director Penalty Notices whereas we received almost none in 2009;
  • The ATO initiated 11% of court liquidations in 2011 – up from 2008, 2009, and 2010 figures of 5%, 8% and 5% respectively;
  • the number of payment arrangements in place has dramatically dropped from 113,000 representing debts of $1.7 billion in 2010 to 41,000 representing debts of $500 million in 2011.

So it’s not so easy to get payment terms now and, if a company defaults, the directors can expect to receive a DPN, Garnishee Notice or a Wind Up Notice fairly promptly.

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