ATO CHANGING DEBT COLLECTION APPROACH
Over the GFC period the ATO took quite a lenient approach to collecting both income tax & GST debts. Towards the end of the Labour Governments period in office this started to change and has now turned full circle. The ATO are now issuing garnishee notices to business clients in order to collect debts owing to them.
The process the ATO go through;
- Send out overdue notices
- Make telephone contact with the taxpayer
- Offer terms payment option over a period
- Should the taxpayer not adhere to the terms payments conditions
- Garnishee notice can be issued
WHAT IS A GARNISHEE NOTICE?
The ATO send a notice to your bank to advise them that you owe the ATO an amount and advise the bank that they are required to pay this amount to the ATO from any funds the taxpayer has in the bank. If the full amount can’t be paid then the ATO require the bank to pay 30% of the available funds in the bank to the ATO.
This action by the ATO can have a significant effect on a business and its cashflow position.
WHAT TO DO TO AVOID THIS SITUATION
If you get into the situation of owing the ATO and you can’t pay the full amount when it is due you need to
- Keep ATO informed of your situation and immediately contact them to make a payment
arrangement with them (they will charge you interest at around 9.5%)
- Make all terms payments on time (essential)
- If you cannot make a terms payment on time immediately contact the ATO and advise them when you
will make the payment
OTHER GARNISHEE NOTICES
The ATO can also issue a garnishee to your major customer to have payments made to them by the bank or customer when income is received.
WHY DO BUSINESS’S GET INTO THE SITUATION OF NOT BEING ABLE TO PAY THEIR TAX OBLIGATIONS?
There can be many reasons but usually it will be because
- Slow cashflow into the business (debtors not paying you on time)
- Under capitalisation when the business started (didn’t have enough funds to start the business and get
through the first year)
- Business owner drawing to many funds from the business for private living
- The margin the business makes on its sales is too low for the sales
- It generates bad debts where someone owes your business & doesn’t end up being able to pay
If your business is experiencing ATO debt payment problems then the questions the business owner needs to be asking themselves is
- Is my business viable?
- Do I have the necessary skills to operate all facets of the business?
- What do I need to do to get out of this problem?
In relation to these questions ADAMS ACCOUNTING can help you
We can perform an analysis of your business and help you set some rules and a action plan to stick to that will assist you in avoiding cashflow shortfalls. We can also help you deal with the ATO.