There is no doubt that the ATO is continuing to develop and refine their debt collection processes. In recent times we have seen the ATO more diligently apply the tools at their disposal to recover debts owed. The information below is from our observations over the past six months.
We have all seen clients receive a demand letter from the ATO. The one with the big red letters at the top. In the past it was not uncommon for the ATO to issue this sort of demand, but then take little or no additional action for a considerable period of time.
More recently though, on expiry of the demand letter the ATO has been far more proactive in moving forward and issuing Garnishee Notices. Often the ATO will issue two Garnishee Notices as part of their process. Usually, the first will be over the debtor’s bank account, and in some instances, will require the financial institution to remit 30% of the credit funds in the account (or accounts) or the full amount owing, whichever is the lesser.
We refer to this as a “one hit” Garnishee. This means that it applies as at a specific date, usually when received by the bank. The bank checks the balance of the account on that day only and makes any required payment to the ATO while the debtor is blissfully unaware of what is happening.
Commonly this “one hit” Garnishee Notice is followed by another one some weeks later. We refer to this second type of Garnishee as a “fixed term” notice. We have seen instances where this requires the bank to remit all funds received to the credit of the account for a set period, usually around three months. This means that all funds deposited to the account over the course of three months is sent to the ATO by the bank.
A further development is the ATO’s use of Director Penalty Notices (DPNs). It is now far more common for the ATO to send a DPN sooner rather than later. This is often done even when all PAYG and superannuation obligations have been reported on time. Receipt of such a notice gives the director 21 days from the date of the notice to take one of the prescribed actions in order to remit their personal liability. These actions are:
Pay the debt in full;
Place the company under external administration;
Enter the company into liquidation;
Enter into a payment plan acceptable to the ATO.
It is important to note that if the debtor enters into a payment plan and subsequently defaults, the balance of the amount outstanding under the DPN is reinstated in full and the director will be held personally liable for it.
If the director fails to take one of these actions within 21 days of the date of the DPN, they cannot remit their liability in the future. The DPN applies in full and if the company fails to pay the debt in due course the director will be held personally liable. This means a director needs to address their company’s tax arrears quickly.
These debt recovery methods have been available to the ATO for quite some time. However, we are now seeing a more disciplined and proactive approach by the ATO in employing the tools it has available to it.
Should a debtor receive a Garnishee Notice, you should expect that further recovery action will follow soon after. Anyone that receives a Garnishee Notice or a DPN should seek specialist advice immediately and develop a plan to deal with their ATO obligations in a timely manner.
Should you have clients or associates that you know are struggling with financial issues, our team of Strategists would be pleased to discuss options that are available on how to best design and implement insolvency strategies. Call us now on 1300 765 080.