Beware: ATO debt collection activity increasing

COVID was extremely challenging for many of us in business. 

With the sudden loss of revenue, restrictions on travel and reduced consumer demand, keeping up with financial obligations was tough. 

Many businesses found themselves falling behind in their lodgements and/or owing tax debt for the first time. Meanwhile, those with existing tax debt may have seen it deepen. 

During this time, the ATO put supports in place to assist businesses, including payment plans. They also deliberately halted tax and superannuation debt collection and held off on action to ease the strain. 

Unfortunately, this lenience is long gone. Over the past year, we’ve seen ATO debt collection activity increase significantly. Initially, they focused on larger amounts. They’ve now moved to smaller amounts that are only just overdue. 

What this means for you

Because ATO debt collection activity has increased, including for smaller amounts, you’re currently at greater risk of penalties and fines. 

The main penalty is the failure to lodge (FTL) penalty. You can receive an FTL penalty for failing to lodge your tax return or report PAYG instalments, GST or PAYG withholding on an activity statement by the due date. 

The FTL penalty is worked out by a statutory formula based on the size of your business and the period of time since the due date for lodgement:

• Small businesses – One penalty unit for each period of 28 days that the return or statement is overdue, up to a maximum of 5 penalty units. 
• Medium businesses – The penalty unit is multiplied by 2.
• Large businesses – The penalty unit is multiplied by 5.

As of 1 January 2023, 1 penalty unit is $275. Before that date (1 July-1 December 2022), 1 penalty unit was $222. 

The ATO may also charge interest in the form of a general interest charge (GIC) on any outstanding tax debt. The GIC rate is reviewed quarterly. Interest is generally charged from the due date of the tax return until the date the debt is paid in full.

If you repeatedly fail to lodge your tax returns on time, the ATO may also take more serious action against you in some cases. This can include initiating legal proceedings or even criminal charges. 

What you need to do

Because ATO debt collection activity and your risk of penalties and fines have increased, it’s essential as a Maxim client that you:

• Get your work to us so that we can lodge on time 
• Take notice of our emails with payment amounts and due dates 
• Contact us if you need a payment extension so that we can approach the ATO and make a request as soon as possible

If you’d like more information on this increase in ATO debt collection activity or have any issues affecting your ability to meet your requirements, reach out to your Maxim advisor today.