When cash flow is tight, ATO compliance is often the first casualty as preference is given to paying wages and creditors who are pushing harder. In the past the ATO has been quite agreeable to negotiating payment arrangements, however, they have recently toughened their stance on outstanding tax debts. We recently wrote an article on an increase in ATO enforcement activity with the key takeaway being that the ATO is a very powerful creditor, and therefore requires careful handling. Further to this, here are 6 reasons why it’s important to keep your tax lodgements up to date and accurate, even if they can’t be paid.

1. Director Penalty Notices

If a company doesn’t meet its Pay As You Go (PAYG) withholding, Superannuation Guarantee Charge (SGC) obligations or Goods and Services Tax (GST) liability, the ATO may recover these amounts from you personally as a director of the company. The ATO can issue a Director Penalty Notice (DPN) giving the director 21 days’ notice of the impending personal liability.

The DPN outlines the unpaid amounts and remission options available to you. Options include:

garnishees
offsetting any of your tax credits against the director penalties
initiating legal recovery proceedings against you to recover the director penalty

If the company enters into (and maintains) a satisfactory arrangement to pay the entire company debt, the ATO will not continue to seek recovery from you personally, though they may still offset your personal tax credits.

Where the funds are not remitted, directors can avoid personal liability by having the company placed into liquidation or voluntary administration within 21 days of receipt of the DPN.

2. Lockdown DPNs

The term ‘lockdown’ is used to distinguish a DPN that arises as a result of a company failing to lodge its IAS/BAS returns or SGC statement within 3 months of its due date and failing to pay the amount due. This differs to a standard DPN which is where the IAS/BAS returns have been lodged on time, but the funds have not been remitted.

Lockdown DPNs inform the director that they are instantly personally liable for the amount calculated. The directors are unable to avoid personal liability by placing the company into liquidation or voluntary administration. That is, their personal liability is ‘locked down’ and can only be voided by lodgement of the returns and payment of the debt.

If the company fails to report PAYG withholding or SG obligations, the ATO will make an estimate of the unpaid liability and this estimate is due and payable from the date of the estimate notice.

The important message here is that even if the resulting liability cannot be paid, returns should still be lodged within 3 months of the due lodgement date.

3. Single Touch Payroll will increase transparency

Single Touch Payroll (STP) is an ATO initiative to provide real time visibility over the accuracy and timeliness of organisations’ payroll processes. By July 2019 (or July 2018 if you have more than 20 employees), employers will need to switch to Single Touch Payroll.

The intention of STP is to simplify employer reporting as well as increase the timeliness of information shared with the ATO. The real-time data can then be shared with other agencies such as Centrelink. Superannuation payments will also be affected by the new STP system. The ATO will be able to match an employee’s superannuation fund payments to a payslip immediately, rather than waiting for a report from their employer.

Currently, the ATO only plans to use STP to identify employees claiming multiple tax-free thresholds and non-payment (as opposed to incorrect payment) of SGC by employers. However, STP will also give the ATO the basis for examining the accuracy and timeliness of a company’s payroll obligations.

4. Superannuation is the new audit focus

Superannuation audits are becoming increasingly common as super becomes a key focus area for the ATO. To enhance their SGC monitoring, the ATO is also now working with other governmental agencies to detect anomalies and non-compliance.

5. The 3-month grace period for SGC has been removed

On 1 April, 2019 the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 was passed to improve the integrity of the superannuation system. This included an amendment to the reporting timeframes for super and allows the DPN regime to impose an automatic Lockdown DPN on directors if a company’s SGC liabilities aren’t remitted within 28 days of a due date, usually the end of a quarter. The amendments were introduced to prevent directors avoiding personal responsibility for unpaid SGC debt by putting their company into administration or liquidation.

6. New legislation is in place to extend the DPN regime to GST debts

The Federal Government’s package of reforms aimed at addressing illegal phoenix activity is now law. One of the more significant measures under the reforms is the extension of the director penalty regime to include GST and other indirect tax liabilities of a company. You can read more about the new legislation in this article.

Further help:

If you have a tax debt that you are unable to pay in full, we recommend early engagement with the ATO to address payment options. The ATO is more kindly disposed towards people who are actively trying to bring their tax affairs up to date. In addition, we advise all businesses to:

Ensure all BAS, IAS and SGC are lodged by the due dates.

If the resulting debt can’t be paid, lodge anyway.

Report accurately to avoid any future BAS amendments.

If you have received a Director Penalty Notice or a Garnishee Notice, you should seek professional advice as soon as possible. Our advisors are available to help you resolve any ATO debt and lodgement difficulties you may be experiencing. You can reach us on 07 3023 4800 or at mail@marshpartners.com.au.

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