In a Newsletter earlier this month we referred to the ATO's expanded use of Director Penalty Notices (DPN's) for recovery of certain unpaid taxes, especially to collect PAYG Withholding and Superannuation. DPN's are a concern because there is no real defence, the company debt becomes a persons debt as a result.

The tax office has said that it is now intending to take 'more timely and stronger action' against small businesses with outstanding tax debt.  This will include garnishee notices, DPN's, and even insolvency proceedings.

The primary purpose is to collect the debt but is also to prevent those who don't pay from trading insolvent.  Insolvent trading causes financial distress for suppliers, customers and employees and gives those firms an unfair competitive advantage.  (Is that really a concern for the business, or is the Government just missing out on its share ?).

Collectible tax debt of businesses is almost $34 billion, and collection agencies have warned many businesses are presently struggling to break even, some surviving only because interest rates are low, and quite a number are close to collapse.  (It is possible that the economy could continue like this for a couple of years, so if you haven't already, develop a strategy to deal with tight conditions.)  There is no specific debt threshold at which the tax office could begin insolvency action but it says it will consider the asset position of the business, the size and nature of the debt, the future income of the business and the risk to revenue, and the cost and likely success of undertaking collection action.

Couple this information with the action to prevent 'pre-insolvency activity' by ASIC this month in raiding offices of several firms specializing in reorganization to avoid liquidation, a nice way of saying phoenix trading which is illegal (move the assets to a new company, allow the old one to go under and creditors get nothing, new one continues in a similar name).

So, what do we expect:

- The ATO should be approached early for a payment arrangement.  It is likely that the debt will be required to be paid over 12 months, but the current policy allows for flexibility and 'being reasonable'.  Usually the ATO is quite helpful.  (Or, call us to attend to this for you.)

- If staff super can't be paid on time (by the 25 ^th of the month after each calendar quarter), lodge a listing of the super due to the ATO (call us for the form) and avoid a DPN.

- After 31 October, all super has to be lodged and paid electronically (say, using Superstream), so this may take the place of the paragraph above.  At least lodge and avoid a DPN.

- Beware of trading insolvent.  Prepare profit and cash forecasts for 12 months to ascertain that the business is profitable and can pay its debts as and when due.  (We have software that makes this much easier to do).

- Prepare a One-page Plan and a Profitability Analysis – these will highlight the 3 or 4 strategies that will make the biggest difference in the next year.  This usually requires up to half a day.