June 22, 2021

What you need to know about ATO Tax Debt and the Consequences of Failure to Pay

Owing tax debt to the ATO can be a serious issue for businesses. Whether you are a director of a company or a sole trader, ignoring tax debts can come with consequences such as added interest, penalties, fines and potential litigation. As a director, you can also be held personally liable for your company’s unpaid tax debts, so it is important to understand the options you have, to avoid the consequences surrounding failure to pay.

How Does a Business incur ATO Debt?

Most transactions undertaken in business have some tax implications so knowing your tax obligations is a major part of operating a business. It is also important that you understand your lodgment requirements including activity statements and tax returns to ensure that you don’t incur late lodgment fees and interest for unpaid debts.

What are the Consequences?

There are a number of consequences if you fail to lodge your activity statements and tax returns on time or make the necessary payments. To help recover the outstanding debt, the tax office can issue garnishee notices on bank accounts and debtors, and also issue director penalty notices.

What is a Garnishee Notice?

A garnishee notice is a direction issued by the tax office to any third party who owes money to a taxpayer or who holds funds on behalf of the taxpayer. Usually, the ATO would issue a garnishee notice to a taxpayer’s bank seeking payment of funds held in the bank account to the tax office to reduce outstanding tax debts. The third party (in this case, the bank) is legally obligated to pay those funds to the ATO to comply with the notice.

What is a Director Penalty Notice (DPN)?

Directors are required to ensure companies meet their Superannuation and tax liabilities. A DPN can be issued by the ATO to a director based on a company’s failure to meet these requirements and allows the tax office to recover unpaid superannuation and tax debts from a director personally. DPN’s issued by the ATO can be satisfied by a director in the following circumstances:

GST & PAYG Debts

Superannuation Debts


How does a Business address ATO Debt?

Entering into a payment arrangement is an option to pay off your tax debts, however it’s important to engage early with the ATO to ensure you deal with this as quickly as possible. There are alternative arrangements to pay off your tax debts, so don’t be afraid to seek some advice on the options you have available to deal with these debts.

Get in touch with your accountant or your advisor to see what can be done so this matter can be dealt with as soon as possible to avoid consequences further action being taken by the ATO.

Article written by Adam Kersey (Associate Director) – SV Partners Brisbane

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