Tax Debt Disputes - Early Avenues for Resolution

Free Consultation

At Odyssey Legal, our tax debt dispute lawyers can assist with drafting and issuing a deferral request, remission request or a payment plan to the ATO, as well as negotiating with the ATO on the terms of the payment plan.

Let our experts put you on the right avenue towards a resolution by booking in a free 15-minute consultation today.

Executive Summary

If a debt is owed to the Australian Taxation Office (ATO), then there are various avenues that they ATO may take to enforce the debt against the individual, company or director of the company. This may include a letter of demand, director penalty notice, a garnishee notice, issuing a bankruptcy notice or statutory demand or commence proceedings.

There are however avenues available to you to resolve the dispute with the ATO, prior to the ATO taking enforcement action against you, including:

1.    Deferral of Payment Request;

2.    Remission Request; and

3.    Request for a Payment Plan.

This article will breakdown each of these avenues and the factors that the ATO consider in determining whether to accept any of these requests.

Deferral of Payment Request

Practice Statement Law Administration (PS LA 2011/14) deals with the ATO’s general debt collection powers and principals. Under PS LA 2011/14, the term ‘deferring the time for payment’ means:

‘to vary the time at which a tax-related liability becomes due and payable. In a practical sense, such a deferral extends the time for payment of a debt without attracting additional charges for late payment (provided the debt is paid at or before the deferred time). As a result, the debt is no longer due and payable on the original due date, but becomes payable on the date as deferred. It differs from the situation where a debtor is permitted to pay by instalments where additional charges accrue from the original due date. In the latter case, the time at which a tax-related liability becomes due and payable is not varied and interest on any unpaid amount begins to accrue from that time. (See Annexure B 'Payment arrangements').’

Section 12 of PS LA 2011/ 14 stipulates that the ATO has the power to defer the time at which an amount of a tax related liability is or would be due and payable.

Further, section 255-10 of Schedule 1 to the Taxation Administration Act 1953 (TAA) enables the ATO to defer payment of a tax related liability having regard to the circumstances of a particular case (at the ATO’s discretion). In accepting a deferral of the payment, the ATO can consider whether to impose additional charges for late payment or withhold the additional charges.

Section 32 of the PS LA 2011/14 stipulates that the time for payment will generally not be deferred unless the debtor can demonstrate that:

‘payment cannot be (or has not been) made by the original due date because of circumstances beyond their control and the debtor has taken reasonable steps to mitigate the effects of those circumstances

payment in full can be made at a later time, once the circumstances that led to non-payment have been alleviated, and

once the circumstances are under control, continuing tax-related liabilities will be paid as and when they fall due (and accordingly, the debt will not escalate after that time).’

These circumstances could include natural or other disasters, serious illness or legal impediment. If the ATO are satisfied with the information provided, then they may agree to defer payment of tax debt that is owing. You are otherwise still required to comply with your other taxation obligations and any other tax debts that arise, subject to any further negotiations with the ATO.

Remission Request

In the alternative, and pursuant to section 8AAG of the TAA, the ATO can remit all or part of the charges payable if:

1. The delay in payment was not caused by an act or omission of the person, and the person took reasonable action to mitigate the effects of the delay; or

2. The delay was caused by an act or omission of the person, but the person took reasonable action to mitigate the effects, and it would be fair and reasonable to remit all or part of the charge; or

3. Special circumstances exist making it fair and reasonable to remit all or part of the charge, or it is otherwise appropriate to do so.

Practice Statement Law Administration (PS LA 2011/12) also provides guidance on remission of general interest charges.  Under the PS LA 2011/12, the ATO consider the following factors (in addition to their own discretion):

     Where delay not caused by you

The ATO may remit GIC where they are satisfied that:

1. the circumstances contributing to the delayed payment are not your fault; and

2. you have taken reasonable steps to mitigate, or mitigate the effects of, those circumstances.

Where delay was caused by you

The ATO may remit GIC;

1. where the circumstances contributing to the delay are due to your acts or omissions; and

2. you have taken reasonable steps to mitigate, or mitigate the effects of, those circumstances; and

3. having regard to the nature of those circumstances, it would be fair and reasonable to remit.

Payment Plans

In the alternative, if you are unable to pay a tax debt when due and payable, you may be able to set up a payment plan with the ATO to discharge the tax debt. This may allow you to discharge your tax debt without causing significant financial hardship. You would need to be aware that general interest charges (GIC) will still accrue on the tax debt during the term of the debt (unless waived by the ATO).

It is at the ATO’s discretion whether to accept a payment plan proposed by you. The PS LA 2011/ 14 provides factors that will be considered by the ATO when determining whether to accept a payment plan. These factors include:

‘• the information provided by the taxpayer and other information that may be held (or obtained) by the Commissioner

•the circumstances that led to the inability to pay

•the taxpayer's current financial position, including other current payment obligations and actions taken by the taxpayer to rearrange finances or borrow to meet the debt

•the stage that any legal recovery action has reached and any grounds offered by the taxpayer to justify a request that further legal action be deferred

•the offer made and the ability to meet payment of the debt (and the additional charges for late payment imposed by legislation) on those terms without seriously impacting on the taxpayer's ability to meet other obligations

•whether there is a likely risk to the revenue by accepting payment by instalments and whether that risk could be overcome by seeking some form of security for the debt from the taxpayer (see Annexure C 'Securities').

•the solvency of the taxpayer and arrangements made with other creditors (arm's length or otherwise) to pay debts.

•compliance with other taxation obligations or commitments (for example, whether all lodgment obligations including activity statements (BAS/IAS) are up to date) and the history of the taxpayer's prior dealings with the Commissioner

•whether there are alternative collection options that may result in payment in a shorter timeframe (for example, the use of garnishee provisions)

•the willingness of the taxpayer to enter into direct debit arrangements if that facility exists, and

•the willingness of the taxpayer to accept the conditions under which the Commissioner will agree to a payment arrangement.’

In our experience, to appropriately consider a payment plan, the ATO require at least:

1. An upfront payment of 30% of the tax debt; and
   

2. The debt is paid off in the shortest time possible, generally twelve (12) months or less, or in some circumstances, twenty-four (24) months; and
   

3. The payment plan takes into consideration any other relevant tax obligations or GIC that may arise.

Upon receipt of the proposed payment plan, as well as information relating to the above factors, the ATO will undertake a risk analysis pursuant to Practice Statement Law Administration 2011/18.

If the ATO, in exercising their discretion, are satisfied with the information provided and the risks associated, then they may be willing to accept the payment plan and defer any further legal action. However, if the ATO are not satisfied with the information, then they may reject the payment plan.

Alternatively, if the risk analysis is not favourable, then they may seek that you provide the ATO with a form security (i.e. an interest in property or other assets) or a surety to satisfy their risk analysis.

In some cases, the ATO may accept the payment plan, but without deferring legal action and may require that a judgment is obtained or that you consent to a judgment as a precondition of the payment plan.

If the debt is $200,000.00 or less, then you can utilise your online services through MyGov (for individuals or sole traders) or Online Services for Business (for company). Alternatively, your accountant (or registered tax or bas agent) would be able to arrange a payment plan with the ATO. However, if the debt is over $200,000.00, then you will need to contact the ATO during their business hours.

Conclusion

There are several avenues available to you to attempt to resolve the tax debt with the ATO prior to ATO enforcing the debt against you. It is imperative that you act promptly to mitigate the risk of any adverse consequences.

At Odyssey Legal, our tax debt dispute lawyers can assist with drafting and issuing a deferral request, remission request or a payment plan to the ATO, as well as negotiating with the ATO on the terms of the payment plan.

Let our experts put you on the right avenue towards a resolution by booking in a free 15-minute consultation today.