Construction businesses urged to tackle tax debt

If you owe the Australian Taxation Office (ATO) money, stop holding off and start payment arrangement discussions – that is the key message from the ATO as it ramps up its debt recovery efforts post pandemic.

According to a report by news.com.au, the construction sector is Australia’s biggest debtor, owing a whopping $7.2 billion in the 2020 fiscal year.

During the early days of the pandemic, the ATO shifted its focus away from firmer debt collection action to assist businesses facing the challenges wrought by the pandemic.

Now, with conditions returning to near normal, the ATO has recommenced efforts to claw back the almost $60 billion in unpaid tax debt accumulated over two years.

The tax office said it is focusing initially on taxpayers with higher debts before moving on to the remainder.

For taxpayers who have not responded to calls and letters, ATO has issued further letters under two key awareness programs, the disclosure of business tax debts and Director Penalty Notices.

Disclosure of business tax debts essentially allows the ATO to report significant tax debts of over $100,000 to credit reporting bureaus, which will make a company’s debt visible to creditors and the wider business community.

Director Penalty Notices are issued to directors of companies owing debts such as PAYG(W), Superannuation Guarantee Charge and GST. The notice enables the ATO to hold the directors of the companies personally liable for the companies’ debts.

As of last month, the ATO has sent 29,552 awareness letters for disclosure of business tax debts and 52,319 awareness letters about the use of Director Penalty Notices.

“We’ve seen an encouraging response to our awareness campaigns, with a significant level of payments and taxpayers entering into payment plans,” said ATO Deputy Commissioner, Vivek Chaudhary.

“In fact, more than 20,000 taxpayers have already responded to our awareness letters by making payments or entering into payment plans.”

CPA Australia Senior Manager Tax Policy, Elinor Kasapidis, said that, if a business does owe tax, it is important that it engages with its tax agents and the ATO to discuss options.

“At the end of the day, if you do have debt, don’t put your head in the sand,” she said.

“You need to seek professional advice about your debt and not let it grow.”

Businesses owing less than $100,000 in tax debt are eligible to negotiate a payment plan with the ATO, which can be arranged via their tax agents or by themselves directly with the ATO online or over the phone.

“It is important for businesses to get all their lodgments up to date first before entering a debt payment arrangement, otherwise the debt and liabilities just snowball, which will make it harder and harder for businesses to keep on top of their debt,” Kasapidis said.

The ATO acknowledged that it expects a number of insolvencies to occur over the coming months as the economy normalises.

In fact, market research company, IBISWorld, is expecting house construction enterprise numbers to decline by nine per cent in 2022-23, representing a contraction for the first time in a decade.

This comes as the industry, despite healthy demand for new houses, is currently facing a debt crisis due to supply chain disruptions, labour concerns and rising input costs, in addition to other debts such as tax debts.

IBISWorld says builders’ reliance on fixed-price contracts, which determine a set price for the duration of the contract regardless of the actual costs of production, was a main trigger for the cost crisis.

Businesses owing tax debts are urged to talk to their tax agent or call the ATO on 13 11 42 to discuss payment options.

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