ATO ramps up pressure on directors issuing more penalty notices and disclosure notices

The Australian Taxation Office has increased its pressure on companies that have not paid their taxes by issuing warnings that they intend to pursue company directors personally.

The Australian Taxation Office has already issued more than 10,000 director penalty notices in the first three months of this financial year, potentially sparking a wave of insolvencies as it ramps up efforts to collect overdue company tax.

As the ATO gets more aggressive, experts are predicting an almost 8 per cent jump in company failures this financial year.

The tax office issued 23,489 penalty notices to directors over PAYG tax, GST and superannuation liabilities for the 2022-23 ­financial year, up from just 4362 the year before during the Covid-19 pandemic.

An ATO spokesman said businesses were expected to pay their tax in full and on time.

“If a business can’t pay, they need to get in touch with the ATO before the due date,” he said.

“Company directors are responsible for making sure their company pays tax and super on time. If a company doesn’t pay their debt and they don’t contact the ATO to make arrangements, the ATO may issue a director penalty notice (DPN) to each current director, as well as anyone who was a director at the time the company failed to pay.”

The tax office also expected to issue more than 50,000 intent to disclose notices to credit reporting agencies in 2023-24 compared to 18,917 last financial year and 944 in the previous 12 months.

Court actions filed by the ATO and the big banks are also on the rise as they pursue debt-ridden companies for billions of dollars, driving insolvency figures higher.

It is shaping up to be a massive year for company collapses with figures released by the Australian Securities & Investments Commission showing that there have been 3308 external administration or controller appointments in the period July 1 to October 29. For the whole of last financial year there were 7942.

A third of the failures for the ­financial year to date are construction-related companies (1001), up from 739 for the same period a year ago.

Insolvency expert Jirsch ­Sutherland partner Malcolm Howell said the renewed pressure from the ATO and banks – as well as WorkCover and SROs (State Revenue Office) – would result in insolvencies continuing to rise.

“We’ve done forward calculations that indicate the appointment of external administration numbers will likely hit the 8550 mark for the 2024 financial year,” he said. “The ATO isn’t just after current debts; there are also clear signs it is dusting off old files to recover company debt from directors personally.

“For example, the director of a company that was liquidated in 2019 recently advised us that the ATO had issued them with a DPN linked to the superannuation guarantee covering the 2015 and 2016 financial years.”

Mr Howell said businesses were feeling the strain now because during the pandemic “nothing happened”.

“In the short term we will see continuing increases greater than the pre-Covid amounts to catch up and the next 18 months will be very tough.

“Going to the courts is the last straw and the ATO have plenty of warnings and try and do repayment arrangements which is not possible in many cases because directors – especially in hospitality – have overseas and they still owe money.

“Banks do it subtly with refinancing options before moving in, The problem now is business have to cope with interest rate rises and general costs increases.”

According to Alares’ latest Credit Insights Report, court activity initiated by the ATO in October increased significantly following a short lull in September, with winding-up applications and bankruptcy petitions both at their highest monthly level since 2019.

Alares there were 224 ATO court action in August, 161 in September and 271 in October.

Alares director Patrick Schweizer said many of the current ATO court actions appear to involve legacy tax debts of companies and individuals who were subject to ATO court actions in 2019.

“The data clearly points to the ATO pushing to clean up and collect legacy debts, which may also explain the recent spike in Small Business Restructuring (SBR) appointments, as business owners look for ways to keep their businesses afloat,” he said.

“In previous months, the increase in SBRs coincided with a drop in ATO court activity; however, October saw an increase in both restructuring and ATO activity.”

Fuelled by the pandemic, the amount of tax owed to the ATO rose by 89 per cent over the past four years to $50.2bn in June 2023, with businesses making up 90 per cent of that figure.

Of the $45bn of collectable debt owed by all businesses, small businesses continues to be over-represented, owing more than $33bn.