ATO Notices and Timeline of Enforcement
What can you expect and when?
Unpaid tax debt is the most common reason for a company to enter liquidation. Most directors are aware that the ATO has a range of strong enforcement actions it can use in pursuing debts from companies: Director Penalty Notices; Garnishee Notices; Demands and Wind-up Petitions. What the ATO doesn’t publish is the order and timing of those actions. At Insolvency Solutions Group we receive calls from directors and their advisers every day so we get to see on-the-ground what actions the ATO takes and when.
The actions we see the ATO taking can vary quite a lot and the promptness and aggressiveness of the actions seem to relate to whether the ATO officer perceives the debtor company as being cooperative or not. So the following information should only be regarded as a guide, as it has been compiled from anecdotal evidence we have collected over the years.
So, here are some general principles on what a taxpayer (by which we mean a small to medium sized company) can expect:
- If the company is struggling to pay a tax debt the tax man will often accept a repayment arrangement. That could typically be up to six months;
- In the last few months we have heard a number of stories whereby the ATO will agree to a payment arrangement but only if there is a large up-front installment;
- Notably, during and post the GFC it was easy to get a payment arrangement of up to two years – however, those days are gone;
- If a taxpayer defaults on a payment arrangement then sometime in the not too distant future, say one to four months, there is a good chance the ATO will issue a Director Penalty Notice (“DPN”);
- The message to the director who receives a DPN is quite explicit – either get the company to pay the tax debt or put the company into liquidation or voluntary administration – do nothing and you’ll be personally liable in 21 days;
- If the DPN expires, then sometime thereafter, being probably 3 to 9 months, the ATO will issue the relevant demands to allow it to apply to Court for the appointment of an Official Liquidator to the company;
- And sometime after that again, possibly even years later, the ATO will ask the directors to pay the amount due from the DPN.
So it can be a slow process but the message for directors is that they need to deal with the problem. Whereas a small trade creditor is likely to be aggressive initially and possibly then lose enthusiasm, the ATO will be somewhat understanding initially, a little slow to act, but in the end, relentless.
If the above advice has not answered your questions you might want to review the following pages and downloadable Information Sheets:
- Pre-liquidation Checklist for directors
- Why liquidate your company at all?
- Sale of Assets
- Appoint a liquidator
- Guide to Solvent Company Liquidations
If you would like to learn more about Director Penalty Notice, please access our full Director Penalty Notice guide created by Insolvency Solutions Group’s specialists explaining this in detail.