What to do if the ATO notifies you of a tax debt?

For many businesses, ATO debt can be a serious issue. In mid-2019, the level of undisputed tax debt was $26.5 billion. By June 2022, the level of undisputed tax debt had risen to $44.8 billion

Receiving a notice from the Australian Taxation Office (ATO) indicating a tax debt can be a daunting experience for anyone. However, it’s crucial to address the situation promptly and responsibly to avoid potential penalties and further complications. If you find yourself in this situation, here’s what you should do:

1. Review the Notice: Carefully read the ATO’s notice to understand the details of the tax debt, including the amount owed, the tax period, and any applicable interest or penalties. Ensure that the information is accurate, as errors can occur.
2. Seek Professional Advice: If you are unsure about the notice or how to proceed, consider seeking advice from a tax professional, such as an accountant or tax advisor. They can guide you through the process, help you understand your options, and even negotiate with the ATO on your behalf.
3. Contact the ATO: If you believe the tax debt is accurate, or after verifying the information, get in touch with the ATO as soon as possible. Ignoring the notice can lead to more severe consequences. The ATO may be able to offer payment arrangements or set up a payment plan based on your financial circumstances.
4. Arrange a Payment Plan: If you cannot pay the full tax debt upfront, discuss the possibility of a payment plan with the ATO. They may be willing to allow you to pay in installments over a set period. Making regular payments shows your commitment to addressing the debt and can prevent harsher actions from the ATO.
5. Review Your Finances: Assess your financial situation to see if there are any assets or funds you can use to pay off the tax debt. While it may be challenging, exhausting all available resources can help reduce the overall debt burden.
6. Negotiate Interest and Penalties: In certain circumstances, the ATO may be open to reducing or waiving the interest and penalties associated with the tax debt. This is more likely if you can demonstrate genuine financial hardship.
7. Stay Compliant Going Forward: Ensure you meet all your future tax obligations on time and accurately. Being compliant can improve your relationship with the ATO and prevent further issues.
8. Avoid Debt Management Companies: Be cautious of debt management companies that promise to resolve your tax debt for a fee. Some may charge excessive amounts without providing effective assistance. Always deal directly with the ATO or seek advice from reputable professionals.

Remember, the ATO understands that people can experience financial difficulties. They are generally willing to work with taxpayers to find a reasonable solution. However, avoiding communication or failing to take action can lead to more severe consequences, such as asset seizures or legal action.

If you’re facing a tax debt notice from the ATO, this requires a proactive and responsible action. Seek professional advice, communicate with the ATO, and explore viable payment options to resolve the debt and prevent further complications.