Innocent until proved guilty – Right? Wrong! There is no presumption of innocence according to the Australian Taxation Office who is fighting a parliamentary committee to retain its powers.

Currently, if the ATO makes an accusation of tax evasion, a taxpayer is deemed guilty until they prove their innocence.

If the ATO raises an assessment, even out of thin air and without being able to support the claim, the obligation is upon the taxpayer to prove there is no debt. In the meantime, the tax office has full power to recover the debt.

A federal inquiry into tax disputes found numerous stories of ATO auditors bullying taxpayers while taking an aggressive revenue-bias approach. The enquiry heard this has lead to businesses and lives being ruined, including mental breakdown and suicide more helpful hints.

The committee recommend the onus of proving guilt should be upon the ATO rather than the taxpayer proving innocence, and that any findings or allegations must require a substantial level of evidence. The committee has also recommended a new independent second commissioner be appointed with the ATO to hear taxpayer appeals.

Tax Debts and Company Insolvency

Small businesses account for more than 60% of the total debt owing to the ATO.

The inquiry found that because of this, and the fact that small business generally does not have sufficient financial resources to argue against the ATO, many taxpayers simply choose to settle claims despite objecting to the assessment and having grounds for appeal.

In the alternative, it also found many companies forced into liquidation and company insolvency.

The ATO is seen to be very threatening and have a number of aggressive measures that they use against taxpayers.

One tactic to recover debt has been for the ATO to raise a tax assessment, and then immediately issue a garnishee before a taxpayer has the right to lodge an objection to the assessment.

A garnishee is a tool that directs a bank to withdraw the taxpayers’ funds from a bank account and pay them to the ATO. Clearly, this can have devastating effects on a business and lead to company insolvency.

Director Penalty Notice

The tax department can also hold a director of personally liable for company debts – specifically unpaid PAYG and superannuation. This is called the Director Penalty Notice regime.

Normally, a director is not responsible for company debts unless a personal guarantee has been granted however, where BAS lodgements are made more than 3 months past the due date for lodgement, a director becomes immediately personally liable for company tax.

If lodgements have been made on time and a debt exists, the tax office can hold a director personally liable by issuing a Director Penalty Notice. If a director fails to comply with the notice, personal liability for company debts follows.

In either case, the ATO does pursue individuals into bankruptcy for debts under the Director Penalty Regime.

Current ATO recovery attitude

Historically, the ATO has been responsible for the most forced liquidation and company insolvency cases in Australia.

At present, many of our clients are complaining of a new and aggressive push by the ATO in its collection activities.

During the GFC, the ATO assisted taxpayers by entering into payment arrangements over 2 years or more without any real documentation in support. Subsequently, in from about 2010 onwards, the ATO would allow instalment agreements over a 12 month period, and sometimes a little longer, if the taxpayer could demonstrate by way of documentation, that the business could sustain such an arrangement as well as its current obligations.

In the last week however, we had a client with a relatively small tax debt of $80,000 who willingly approached the ATO regarding an arrangement.

The client proposed an arrangement that would see the total debt paid over a 12 month period and could demonstrate the business would be able to satisfy such an agreement as well as maintain its current obligations.

However the tax department refused and offered only a 3 month period in which to pay the total debt.

No matter what the client proposed, the ATO officer refused saying instead that because there were many outstanding tax debts owing, this was now the ATO’s official position.

ATO Power of Compromise

While we unsure as to whether the above is the official position of the ATO or just the hardened attitude of one particular government employee, we thought we would highlight the fact that the ATO does have the authority, where it is reasonable to do so, to:

• Allow a taxpayer to pay a debt by instalment where they face genuine difficulty
• Waive penalties
• Release a taxpayer from payment of certain taxes if payment of the full amount would cause serious hardship
• Allow a partial or full remission of the general interest charge
• Fully compromise a tax debt of a company or an individual.

There are a number of minimum requirements for reaching a compromise with the ATO including:

• All elements of the proposal must be in writing and supported by appropriate material
• The compromise must offer all the taxpayers net assets (with limited exceptions)
• The commission expects to be treated the same as other creditors.
• The commissioner must know the precise amount of all current tax debts that are sought to be compromised.
• All lodgements must be up to date

A Final Note

There are rules and requirements in relation to compromising debts with the ATO and The Insolvency Experts can assist you in your dealings with the ATO.

No matter how difficult the financial situation, company insolvency is not the only option. Liquidation is but one of a range of alternatives that director must consider for their own benefit before they make any formal appointment.

If you are facing financial difficulties, take control, and learn about the alternatives available to you. As always, call The Insolvency Experts for help.

Source: ATO Powers to fight tax evasion – SMH ATO inquiry – SMH

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Disclaimer
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.