Keeping the ATO at Bay When Times are Tight Presented by Martin - PDF document

Keeping the ATO at Bay when times are tight Martin McCoy Who should you trust? Ryan & Durey Keeping the ATO at Bay When Times are Tight Presented by Martin McCoy

OVE VERVIEW In this presentation, I will talk about: • The preparation required to minimise your risk of suffering at the hands of the ATO (or other creditors). • What you can do when the ATO does “come knocking”. INITIAL PRE INI REPARATION This is not a talk about Business Structures, but: • Businesses with a well thought out structure are far better placed to deal with solvency issues (whether caused by the ATO or others) than businesses with a poor structure. • The best time to put a good structure in place is “as early as possible”.

A FE FEW TIP TIPS ON STR TRUCT CTURE Three key tips for setting up and maintaining an appropriate business structure: 1) Keep different asset classes in different entities, 2) Keep your inter entity loans to a minimum, and don’t cross collateralize your borrowings, 3) Keep your internal documents up to date. WHEN WILL THE ATO “COME KNOCKING”? • People often say “I haven’t lodged my tax returns/lodged my BAS/ paid my tax. When will I hear from the ATO”? • My answer usually is “I have no idea, but they will get to you eventually”. • The fact that the ATO is tardy often means that taxpayers forget about the ATO, and deal with creditors who are “pushing harder”. This is not wise.

TR TRAPS FOR R YOUNG PLAYER ERS NO.1 .1 – HEAD IN IN TH THE E SAND • The ATO aren’t chasing me at the moment, so I’ll ignore them, and hopefully they’ll stay away. • The ATO is much more kindly disposed towards people who are actively trying to bring their tax affairs up to day. • If they see lodgements and/or payments being made, they will often “move on to the next taxpayer”. TR TRAPS FOR R YOUNG PLAYER ERS NO.2 .2 – DIRE IRECTOR PEN ENALTY NOTICES • If I lodge my BAS, but can’t pay it, I am simply asking for the ATO to “come after me”. • If you lodge your BAS within 3 months of the due date, but can’t pay, you get what is called a “21 day” DPN. • If you don’t lodge your BAS within 3 months of the due date, you get what is called a “Lockdown” DPN.

DEM EMANDS FOR LODGMENT • Question : What do you do if the ATO demands that you make lodgements? • Answer : Make the lodgements. • This might seem obvious, but the alternative could easily be a prosecution for failure to lodge, and this is to be avoided. TH THE E ATO HAVE VE COMMENCED PROCEEDINGS (OR (OR HAVE VE TH THRE REATENED TO DO SO) There is usually no means of defending proceedings brought to recover tax debt in the usual way, but there are three questions to address: 1) Is the amount of tax correct? If not, lodge an objection. 2) Has GIC been imposed? If so, consider if there are grounds for remission. 3) Have penalties been imposed? If so, consider whether there are grounds for challenge.

RE REMISION OF F GIC IC (A (AND PEN ENALTIES) • Often GIC (together with penalties) form a major portion of the outstanding debt. • While the ATO is generally extremely reluctant to compromise primary tax, there is usually scope for remission of GIC and penalties (see for example PS LA 2011/12). • Generally requires “circumstances beyond taxpayer’s control” (medical issues are always good in this regard). PAYMENT ARR RRANGEMENTS Once you have reduced the debt by getting remissions of penalties and GIC where appropriate, you should seek a Payment Arrangement for the remaining amount if you can’t pay it in a lump sum. 1) These are easy enough to get over a year, get progressively harder for periods up to two years, and are very seldom granted for periods over three years. 2) “Balloon payments” are ok if you are selling an asset, but generally monthly payments are required. 3) You will need to meet current obligations as and when they fall due. 4) You will not get a Payment Arrangement if your lodgments are not up to date.

PAYMENT ARR RRANGEMENTS – SLOW RE RESPONSE The ATO have never been the most efficient of organizations, and they have been taking inordinate amounts of time to respond to requests for Payment Arrangements (and everything else) of recent. If a request for a Payment Arrangement is made in writing (as I usually do), I often advise clients to simply proceed as if the Payment Arrangement has been granted, and make the appropriate payments. TH THIN INGS NOT TO O BOTH THER WIT ITH Saying: 1) “I will give you 50% of the amount outstanding. That’s all you will get if you bankrupt me (or wind up my company)” 2) “I will go to the media if you bankrupt me (or wind up my company)” 3) “My employees will be out of work if you bankrupt me (or wind up my company”. Say these things if you insist, but be clear that they will make no difference (ATO Debt Officers hear these things every day).

VE VERY IM IMPORTANT! • IF YOU CANT PAY THE ENTIRE AMOUNT OF THE DEBT, BUT CAN PAY SOME OF IT, MAKE SURE THAT THE MONEY YOU DO PAY IS DIRECTED TOWARDS AMOUNTS THAT COULD GIVE RISE TO A DPN. BANKRUPTCY AND WIN INDING UP • Don’t think it’s all over when the ATO brings a Creditor’s Petition or a Winding up Application. • The ATO will still consider Payment Arrangements at this time, you just need to move a bit more quickly. • I am well aware of this, as this is when clients often first come to see me.

CONTACT DET ETAILS Martin McCoy Special Counsel Email : martin@ryandurey.com Phone : +61 8 6166 9000 Office Location : Level 2, 8 Colin Street, West Perth WA 6005