ATO outlines path to recoup $50 billion collectible debt at The Tax Summit 2023
MELBOURNE Wednesday 13 September 2023: Collectible debt has reached unsustainable levels, advised Vivek Chaudhary, Deputy Commissioner of Tax at the ATO, with the outstanding amount almost doubling since 2019. Speaking at The Tax Summit 2023, hosted by The Tax Institute, Chaudhary expanded on Commissioner of Taxation, Chris Jordan’s statements around collectible tax during the second day of the event, outlining the ATO’s priorities as it attempts to recoup $50 billion of collectible debt owed by Australians and re-establish a culture of paying on time, a shift from the concessions given to businesses during COVID-19.
Australians have historically been great at paying tax on time, said Chaudhary, through government design and a positive tax culture where paying tax is seen as ‘the right thing to do’. “Our levels of voluntary compliance are world leading. Last year, more than 80% of income tax returns and 70% of BAS (business activity statements) were lodged on time – around 16.3 million tax returns and 9.7 million BAS statements.”
“We know that many people are facing cost of living pressures, but where we see businesses behind with tax there is a fair chance they are also falling behind in payments to other creditors, suppliers and even employees. This is not good – for those impacted, the tax system or the business itself.”
Changes made during the pandemic have impacted the payment culture, Chaudhary advised. “Too many businesses have accumulated unsustainable levels of debt. The collectible debt has increased over the past four years from 26.5 billion in June 2019 to 50.2 billion in June 2023 – an 89% increase; collectible debt has nearly doubled.”
Chaudhary echoed Commissioner Jordan’s earlier point that the ATO is focused on non or late payment across individuals and businesses of all sizes – but small businesses are overrepresented among those owing. “We are working on addressing this behaviour in the biggest group we see, which is small business. Of the $33 billion collectible debt owed by small business, $23 billion is unpaid BAS that includes Pay As You Go withholding and GST, along with $1.8 billion in unpaid superannuation guarantee that has a direct impact to their employees.”
Chaudhary called on tax professionals to support this effort. “We need your help to engage your clients on this issue,” he said. “We need to bring collectible debt down for the benefit of the community – it’s unfair that some taxpayers are choosing not to pay on time. Our expectation is that all clients will pay on time and not wait for us to chase them or expect concessions from the ATO.”
The ATO has already started working to reset expectations, as many businesses may have already observed. “You will have seen more activity over the last 12 months with an increase in firm interactions and a willingness to escalate legal actions for large debts, especially those who are choosing not to engage with the ATO…. Preventing debt is the best way for businesses to stay on track. And we’ve seen that leaving debts unchecked and unmanaged for prolonged periods of time rarely improves the future viability of a business.”
Proactivity is the best approach for those managing debts, Chaudhary advised, and warned of the limited avenues and penalties for those who wait to be followed up by the ATO. “Clients who make the choice to contact us early will be best placed to discuss relevant options – early means before the due date, not after it.” The most effective payment plan, he said, is to ensure they’re back on track before new debts accumulate, meaning for the majority shorter repayment periods of 90 days to 12 months.
He acknowledged the pressure many businesses are facing from the high cost of living and interest rate rises, emphasising that support is still available for those who need it. “Interest remission requests will be assessed only on a case-by-case basis, considering exceptional circumstances and specific factors that are contributing to someone’s inability to pay.”
The ATO is focusing on 5 specific areas in its efforts to recoup collectible debt, Chaudhary outlined:
Unpaid Super Guarantee Charge: The majority of unpaid super guarantee charge – $1.8 billion of it – is borne by small businesses. “This super belongs to employees. It's for their future retirement, and it's not designed to be in cash.” The government recently announced Payday Super, which is designed to strengthen the super system and support employers payroll management with fewer liabilities building up on their books. When an employer doesn't pay their employees super, they are liable for the Super Guarantee Charge which is much more than the super that they would have otherwise paid into the employees fund. It is also not tax deductible.
“Regardless, unpaid super increased from just under a billion dollars before the pandemic to nearly $2 billion today. The non-payment of super impacts employees’ future retirement savings, the very employees that are allowing you or helping you support your business to grow.”
While the ATO has always taken a strong stance on collecting this debt, Chaudhary emphasised it will double its effort and increase enforcement options. “We will continue to apply a full range of actions including directions to pay director penalty, notice disclosure of business tax and prosecution action to ensure payment and where businesses continue to trade without addressing the Super Guarantee Charge we will escalate our actions towards a wind up in bankruptcy, where appropriate. We will continue to detect employers who are taking advantage and not paying the relevant entitlements, and these employers will be held to account.”
ATO Audit Adjustments: The next priority is debt arising from ATO audit adjustments. This includes debts initiated by ATO programs including the GST Compliance Program, Tax Avoidance Task Force, shadow economy, and serious financial crime. While most unpaid debt is self assessed, Chaudhary said, it's important the ATO enforces payment as an outcome of audits.
Some audit adjustments do relate to genuine errors, he acknowledged, but others are because the taxpayer or their agent was careless, reckless or in some cases deliberately avoiding paying the right amount of tax. “These clients will receive no concessions with heightened expectations that the liabilities raised have to be paid immediately or in a very short period of time.”
GST Refund Fraud: He addressed the growing rate of GST refund fraud. “No doubt you will be familiar with recent media reports outlining the growing GST refund fraud attempts. Unsurprisingly, the ATO views fraud seriously and taxpayers who engage in it can expect serious consequences. This is nothing more than theft against the community.” The ATO won’t hesitate to apply its powers when recovering debts relating to fraud, Chaudhary asserted. “We will fully extend our stronger powers where necessary beyond the ordinary, including prohibiting overseas travel to departure for division and orders. Only last week, someone was sentenced in the Country Court of Victoria for seven and a half years in prison – that's the cost of attempting fraud against the Commonwealth.
Aged and High Value Debts: Another key driver of collectible debt is aged and high value debts. This year, Chaudhary advised the ATO is doubling its efforts to take recovery action on these debts. “The 2023-24 budget funded a four year program to focus on public and multinational groups, and privately owned groups that have debts over $100,000 or more than two years old. For these, concessions are no longer available and debts will progress straight to further actions – payment plans will be limited."
Over the life of this program, The ATO expects to action 40,000 accounts with overdue tax and super debts to collect $640 million, which can be funnelled into government services.
Employers’ New Self-Assessed Debt: The ATO sees opportunity to secure the future of on-time payments by taking immediate action for those with new debts. “With the introduction of Payday Super in 2026 and the future where tax and super just happens, businesses need to get used to paying taxes in real time,” Chaudary said.
“The time is now to build and maintain those positive payment behaviours. That's why for businesses with new self assessed debt, the ATO will take swift action and uphold the consequences and impacts of delaying payment, including applying interest penalties and progressing to send directions promptly. Clients will pay more if they don't pay on time and payment plans and general interest charge permissions will be reserved for those who genuinely need it.” Those clients who do need more time and support should contact the ATO before the due date, Chaudhary reiterated. “This will be critical in influencing the future payment behaviour and moving away from a culture of waiting for the ATO to call you.”
The biggest takeaway is to reach out to the ATO early, Chaudhary emphasised. “We have dedicated resources to support vulnerable clients, and a number of options including payment plans, remission of penal penalties, deferrals of payment or lodgement, and release of debt and hardship where that's necessary. Yesterday, the Commissioner also talked about the importance of ongoing collaboration and partnership with the profession, which includes our approach to managing tax debts.”
To help tax professionals, Chaudhary announced that in November this year the ATO will increase the online self-serve payment plan threshold from $100,000 to $200,000 for those who don't have the capacity to pay in full.
Shifting the payment culture will need a collaborative approach, Chaudhary said, calling on the tax profession for support. “Our aim in this reset is to set up businesses so they avoid falling behind in the first place, but also position them better to be able to recover if they do.”
Vivek Chaudhary joined a compelling speaker lineup of the nation's most forward-thinking minds, including Chris Jordan AO, Commissioner of Taxation; David Thodey AO, Xero Chair; Karen Payne, CTA, Inspector-General of Taxation and Taxation Ombudsman; Victoria Lanyon, Senior Associate at King & Wood Mallesons; Australian Sporting Legend Kevin Sheedy; and many more.
The Tax Summit 2023 brings together taxation specialists, lawyers, accountants, newcomer tax professionals and business leaders as well as anyone with an interest in the latest issues impacting businesses on a local and global scale. For more information on The Tax Summit and its line-up of more than 70 expert speakers, covering topics including economics, property, business, global tax developments and technology, please see the full program.
Vivek Chaudhary joined the ATO in 2019 as the Deputy Commissioner of Lodge and Pay. Vivek has 20 years of global financial services experience transforming and growing business teams into highly productive operations. He previously worked at NAB and was responsible for transforming its collections function into NAB Assist making NAB the first Australian company to make the Fortune’s Change the world list in 2016. Vivek has reshaped the ATO’s approach to lodgment and payment obligations to one that focuses on tailored solutions based on a deep knowledge of the client’s circumstances and behaviours.