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Many small businesses have emerged from the pandemic with tax debt, but a range of assistance is available.
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How to navigate the ATO’s lodgment and payment options
06 May 2022
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The ATO’s increased activity on outstanding tax lodgments and payments is apparent. Various options are available to taxpayers and tax and BAS agents when it comes to managing your obligations. This article considers the assistance that is available when taxpayers are having difficulties meeting their lodge and pay obligations.
Obligations of taxpayers and tax agents
All taxpayers have a moral, civic and legal obligation to lodge returns and pay their taxes on time. This is fundamental to the operation of any well-functioning taxation system, allowing the government to continue to provide essential services to its citizens and look after those who are most vulnerable in our community.
It is not easy to keep on top of all your obligations. The law is complex, there are financial, economic and personal pressures that can affect a taxpayer’s ability to meet their obligations. The past two years has been extraordinarily challenging, and some taxpayers may find themselves in unfamiliar waters. They may have fallen behind in their lodgments and/or owe a tax debt for the first time. Others with existing tax debts may find themselves deeper in debt than before the pandemic.
Small business collectable debt was $24.3 billion in 2020-21 according to the Commissioner’s Annual Report, an increase from $21.4 billion in 2019–20 and $16.5 billion in 2018–19. This is in stark contrast to the collectable debt owed by public and multinational businesses of $1.6 billion in 2020–21, $1.3 billion in 2019–20 and $1.1 billion in 2018–19.
According to the Australian National Audit Office’s Management of Small Business Tax Debt Performance Audit Report published on 30 May 2019, collectively, small businesses owe nearly two-thirds of collectable tax debt and are almost twice as likely to have a tax debt compared to other taxpayers.
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Increased ATO activity
The Commissioner’s Annual Report 2020–21 explains that, given the significant impact of the pandemic on the community, the ATO adjusted their debt collection approach in three phases to enable taxpayers to get back on track:
Help and assist – interactions were focused on understanding the taxpayer’s circumstances and providing the appropriate support.
Advice about future action – gradually reintroducing messages about potential future action for taxpayers who continue not to engage with the ATO.
Additional action – firmer and stronger actions recommencing where appropriate, having regard to the taxpayer’s circumstances.
As part of the first phase, during 2020–21, the ATO provided additional time for 1.4 million small business lodgments and payments, granted 400,000 small business payment plans tailored to individual circumstances and remitted interest and penalties where appropriate.
The ATO has now moved into the third phase and is emerging from the more lenient approach taken during the last two years. It is not surprising therefore that we are seeing increasing late lodgment and debt collection activity.
What assistance is available?
A range of options, tools and resources are available to assist taxpayers who are not categorised as large business or significant global entities (SGEs) in managing their lodge and pay obligations. Deferrals for large business and SGEs are arranged via the ATO’s Large business support team.
Tax lodgments
Broadly, short-term and longer term lodgment support is available for those who meet the criteria.
Generally, the three types of short-term deferral requests available to agents are:
Agent assessed deferrals — must be submitted within three days of the existing client’s lodgment due date and as the first deferral request. The lodgment date increases by a maximum of 14, 21 or 28 days as determined by the term of the lodgment obligation. Excluding FBT returns, payment of the obligation automatically defaults to the deferral due date.
Deferrals for new clients with outstanding tax obligations — the extension is 42 days from the request date and requires lodgment of all overdue returns for new clients with a 31 October due date. Only the lodgment due date is deferred; there is no deferral of the payment of the obligation.
ATO assessed deferrals — are available for secondary or subsequent deferral requests, requests submitted after three business days from the lodgment date, extensions exceeding the default timeframe or for the exceptional or unforeseen circumstances detailed in PS LA 2011/15: Lodgment obligations, due dates and deferrals.
Lodgment deferral forms can be accessed via Deferral forms for registered agents and submitted through Online services for agents (OSfA).
Unrepresented taxpayers having difficulties meeting their lodgment obligations can contact the ATO through MyGov or the ATO call centre.
Lodgment support
Tax agents requiring longer-term support may be eligible to access the ATO’s supported lodgment program. Eligibility is determined by the following criteria:
The inability to satisfy client lodgment obligations is due to unforeseen or exceptional circumstances (PS LA 2011/15);
The agent has no personal outstanding tax obligations;
Steps have been undertaken to mitigate or resolve the issue; and
A plan has been developed by the agent to manage their practice subsequent to the ATO’s assistance.
Agents may engage new clients only where they demonstrate the ability to satisfy both the new client’s and supported lodgment program’s obligations.
Agents interested in this option can obtain further information from the ATO’s Supported Lodgment Program.
Tax payments
The ATO provides several options for agents and taxpayers struggling to meet their payment obligations.
Payment-only deferrals — limited to only income tax, fringe benefits tax and excise duty obligations for clients impacted by exceptional or unforeseen circumstances determined by PS LA 2011/14: General debt collection powers and principles. Client circumstances and future ability to repay the debt must be detailed in the application.
Payment plans — available for all ATO obligations, excluding superannuation guarantee charge debts. General interest charges accrue at ATO GIC rates until the debt is repaid.
Interest-free payment plans — limited to small businesses with an annual turnover of less than $2 million and ATO debt of $50,000 or less relating to obligations less than 12 months overdue. During the 12-month interest-free period, the taxpayer must comply with all lodgment and payment plan obligations.
Agents can apply for payment-only deferrals and payment plans through OSfA. Payment plans for obligations exceeding $100,000 and interest-free payment plans can be made through the ATO call centre. Further details on both payment plans can be viewed at ATO payment plans.
Tax practitioner assistance service
Finally, and separately, the ATO’s tax practitioner assistance service (TPAS) is available to help resolve certain matters you have been unable to resolve through existing channels. The service is not designed to be the first contact you make with the ATO on the issue you wish to resolve. Agents should first try to resolve their issue through OSfA or by telephone.
The TPAS can be used to seek assistance with:
Tax and superannuation law-related matters that relate specifically to your client.
Administrative matters relating to your client or to a practice management matter.
The TPAS should not be used for when you are experiencing difficulties meeting lodgment obligations, for help with a client’s debt or payment plan which should be managed through OSfA or to lodge a complaint.
The reality for practitioners
ATO assistance, at face-value, appears easy to access and implement, and comprehensive in coverage. For practitioners, however, this is not the reality.
Practitioners, having been on the frontline of the COVID-19 stimulus measures, are overworked. The catch-up from the pandemic, and coping with the great resignation, is impacting agents’ mental and physical health.
Increased ATO communications and scrutiny is counter-intuitive to supporting time-poor practitioners. Practitioners are overburdened requesting and evidencing extensions, and responding to ATO letters, rather than concentrating on compliance work. Default extension periods are unrepresentative of the additional challenges practitioners and taxpayers face and practitioners are disincentivised from obtaining specified arrangements due to time constraints.
Payment plan options do not incorporate concessions for taxpayers who have not returned to their pre-COVID-19 turnover levels. The opportunity cost for taxpayers to maintain their business usually outweighs the time-consuming process of applying for a payment arrangement. This process is considerably more burdensome where a client has defaulted on existing payments or has debts exceeding $100,000.
The resurrection of the former Tax Agent Liaison officer role as a dedicated ATO resource, specifically allocated to a portfolio of agents, may be beneficial in the short-term. For longer-term issues, the Lodgment Program Review working group is currently identifying potential issues, irritants, gaps and opportunities to provide recommendations to improve the ATO’s administration of the lodgment program.
Other observations
Banks often require a copy of the client’s tax return and/or financials, as well as a copy of their Integrated Client Account and/or income tax account for the last six months, when refinancing is sought or to meet conditions of existing borrowings.
Some debts are not as visible to the practitioner. Division 293 tax or PAYG instalment notices may be sent directly to clients’ myGov inboxes. Agents then need to interrogate OSfA to look for client communications, which creates reverse work flow and can increase the likelihood of a lodgment or payment obligation being overlooked.
An SMS received on a mobile device advising that “You have messages in your myGov inbox” unhelpfully doesn’t identify which agency has issued the communication, or indeed whether it is a scam SMS. This is an unsatisfactory way to advise that a debt is payable, and debts can readily become overdue when the due date missed. Electronic communication methods have their efficiency benefits, but they also need to be an effective form of communications that a debt is due and payable.
Final thoughts
Importantly, don’t ignore your obligations. The problem won’t go away and it will worsen with inaction by the taxpayer. The ATO doesn’t tire of knocking on the figurative door, say “oh well” and simply walk away. Even if you need more time to pay, it is important to keep lodging on time.
It can be overwhelming, so reach out for help if you need it — whether this be from the ATO, your health professional or seek support from mental health services.
Robyn Jacobson is the senior advocate at the Tax Institute.
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