Tax Debts – What happens if we just ignore the ATO?
Tax debt – it’s a stressful topic, we get it. Sometimes it feels like the best method to deal with it is to just ignore it and return to it when you’ve got the disposable income to pay it off. Or maybe you’re feeling so overwhelmed by it that the best course of action for your stress levels is to just pretend it doesn’t exist. If you relate to this and you’re sitting there shaking your head yes as you read this, buckle up – because there are some things you need to know and understand.
So, what happens if you just ignore all of those pesky texts, messages in myGov, letters, and phone calls?
On top of added general interest charges, they might take firmer action if you’re unwilling to work with them to address your debts.
First, they’ll send you a Notice of Demand, which is essentially a formal notice by the ATO stating that you owe them money and they’re demanding payment of the outstanding balance, giving you a due date for the payment.
If the Notice of Demand is ignored, they can send a Garnishee Notice. The ATO will issue a notice to a third party who owes you money (like your banking institution or your clients) and it will require the third party to pay the ATO instead of you, until the tax debt is settled. This is immensely worrisome as a business owner for many reasons, including having it affect your cash flow, inhibiting your ability to conduct business, as well as showing your clients that you’ve got debts that have been avoided- not a great look.
They can also send a Director Penalty Notice. If you’re a director of a company that has unpaid tax debts, the ATO can issue you with a Director Penalty Notice (DPN). This notice will make you personally liable for the company’s unpaid PAYG withholding and superannuation guarantee charge liabilities. You are able to avoid this personal liability by taking certain actions, such as placing the company into voluntary administration or liquidation or entering into a payment arrangement with the ATO – before the due date specified in the DPN.
After all this, if everything is still ignored, the ATO can and will take legal action against you to recover the debt. This can include obtaining a court order to seize and sell your assets, including property and vehicles, to do so. This can be an immensely time-consuming and costly process, so making sure you don’t let it get to this step is absolutely vital.
If you absolutely cannot pay your tax debts and a payment plan cannot work, the ATO can initiate bankruptcy proceedings against you if you are an individual or wind up your company if you are the director. Bankruptcy and liquidation both have heavy consequences – including restricting your ability to act as a director of a business or even manage your own business in the future.
Dealing with tax debt is undeniably challenging and as time passes, the weight of unresolved obligations can intensify. Recognizing this, the Australian Taxation Office (ATO) has implemented various support systems to assist individuals and businesses in managing and repaying their tax debts. By engaging with these resources early on, taxpayers can prevent their debts from snowballing into overwhelming burdens, safeguarding their financial well-being in the process. Tools such as the Payment Plan Estimator on the ATO website can help you find a payment plan that works for you and your finances. You can even set up a payment plan on MyGov if your debts are under $200,000. If you feel like you need help from a live representative, you can reach them during their normal operating hours. They also have a self-help phone service where you can set up your payment plan without the help of a representative, just have your ABN or TFN ready as well as the full details of the outstanding amount you owe. There are so many avenues you can go down when it comes to setting up a payment plan or paying off your debt, the ATO makes it really easy to do so. The best way to tackle this anxiety-inducing experience is to implement these tools to help alleviate the stress and the outstanding debt.
With all this being said, the ATO's authority to contact clients and enforce tax debts has sparked discussions surrounding privacy and personal liberties. This prompts us to consider the delicate balance between tax enforcement and individual rights. Contemplating these matters not only fosters a deeper understanding of our responsibilities as taxpayers but also empowers us to navigate our obligations while advocating for our rights and privacy. Should you find yourself grappling with tax debt or seeking proactive financial planning to avoid potential debt, we encourage you to reach out and schedule a consultation with us!
