Businesses that collect GST are required to pay it (less any credits) to the ATO either monthly, quarterly or annually depending on their turnover. Where the payment has not been made, the ATO will contact you. Interest, currently 8.96% p.a. calculated on a daily rate, will be added to the overdue amount.
Where you cannot pay the overdue amount, the ATO will discuss a payment plan and whether the debts can be waived if there is financial hardship. Where you receive a tax refund or credit the ATO can use it to reduce your debt.
Where a tax debt is outstanding and there is no arrangement to pay it, the ATO passes collection to a private collection agency. The collection agency will first issue a letter which will include details of the amount owing and how it can be paid. If not paid, the agency will contact you to negotiate payment of the debt. If you dispute the debt after being referred to a collection agency it will be passed back to the ATO.
If an agreement about payment of the debt cannot be reached the collection agency will take stronger action. This includes issuing a garnishee notice and commencing insolvency proceedings.
A garnishee notice is a direction to a person or business that holds money for you. This may be your bank, a trade debtor or employer.
Insolvency proceedings will be either commencing bankruptcy if an individual owes the money, or winding up and liquidation of a company. If bankrupt your personal assets (subject to certain limits) can be used to pay the debt. If the company is liquidated, any assets will be used to pay the debt. Also, the liquidator will consider if there has been any insolvent trading and if so, directors of the company may become personally liable for the debts.
The take-out from this is that if you can’t pay your GST debt to the ATO, don’t ignore it. Get in early and discuss a payment plan. If there is financial hardship, the ATO has powers to waive all or part of the debt.
Bryan Pickard
Senior Solicitor | Commercial & Property Law