At the Tax Institute’s 30th national convention, Mr Chris Jordan, Commissioner of Taxation, outlined the Australia Taxation Office’s ongoing process of reform in a speech aptly entitled ‘Reinventing the ATO’.
The speech signals a tightening of the ATO’s approach to recovering tax debts, which may reduce unpaid taxation liabilities continuing to be an informal funding source for businesses.
The Commissioner expressed the ATO’s aim to make it ‘easier for people to comply with their obligations, so we can increase willing participation’. He focused on the importance of the ATO embracing technology in a range of new products and services, as well as a service-oriented and pragmatic culture, in order to achieve that goal.
The Commissioner emphasised the need for early intervention ‘to prevent debts from escalating beyond people’s control’ noting ‘the amount of debt we have to collect has continued to rise in recent years’.
In fact, in the year ending 30 June 2014, the value of collectable debt increased 10% on the year before, climbing to almost $19.5 billion.
The ATO will now, it seems, initiate bankruptcy and wind-up action where there is evidence that a taxpayer is insolvent, and look to use other statutory powers where businesses have failed to pay employee superannuation entitlements or pay amounts held in trust.
The Commissioner compared the historical approach of the ATO with the typical actions of other creditors, noting that for individual taxpayers the ATO usually waited for debts to reach $300,000 before initiating bankruptcy proceedings, compared to other creditors who often take action at around an average of $35,000.
For companies the ATO previously waited for debts to reach $340,000 compared to other creditors who take action at an average debt of $93,000.
This stricter approach by the ATO is likely to lead to an increase in personal insolvencies and more winding-up application before the Federal and Supreme Courts.