We all hear about director penalty notices (DPNs) for company directors and its power over personal liability for certain tax debts. But what about the 31% of small businesses operating as sole traders? The ramifications that can flow from a sole trader with tax debt, can be just as alarming.
The Australian Taxation Office (ATO) has been engaging with small business advisors and their clients to get tax debt repaid in full or through payment plans with the condition to lodge all outstanding tax lodgements and, of course, to lodge all future lodgements on time.
When this approach is unsuccessful or the taxpayer is not engaging with the ATO to resolve paying the debt owed or lodging outstanding tax obligations, it’s evident the ATO has deployed the stronger action tactics to collect the debt.
There are a number of examples recently where sole traders have received court proceedings initiated by the ATO suing for the tax debt owed.
Sole Traders and Tax Debts
Any sole trader clients, with a tax debt, unable to get a satisfactory payment plan or have a poor tax compliance history (including outstanding tax lodgements), are at a high risk of being served with court proceedings to give the ATO a court judgment for the debt owed.
Sole traders have a significant exposure to being personally liable for all business debts. And not just business assets at risk, the risk extends to the business owner’s personal assets including the interest held in jointly owned assets like a home/real property.
How long will a sole trader client have to resolve this debt?
The ATO’s current debt recovery strategy includes commencing court proceedings as a starting point to recover tax debt owed by small businesses operating as sole traders. If the court decides the debt is owed to the ATO, it will give an order for judgment debt in the absence of any defence that your client is able to attend court to assert such defence.
Securing an order for judgment debt is a precursor to the ATO serving a sole trader with a bankruptcy notice. And if that occurs, a sole trader has 21 days to pay the debt or, in some circumstances, make a payment plan.
What are the steps in the debt collection process for sole traders?
If you receive a bankruptcy notice from the ATO and fail to pay the debt owed in the sum stated within 21 days, then the ATO is well positioned to proceed with court proceedings to have a sole trader client declared bankrupt.
Be warned this is the action the ATO may take if a small business sole trader is not engaging.
This has happened to a number of sole traders recently. Unfortunately, the accrued debt owed to the ATO was significant, more than the business and personal assets the business owner held, making it too late for any other option to resolve the unpaid debt, other than to go ahead with a bankruptcy appointment.
What we can assist a sole sole trader with who is served with court proceedings?
We recommend that you speak with your accountant to assist you to contact the ATO to discuss your circumstances and be proactive about finding a solution and perhaps taking some simple steps (like lodging outstanding returns/obligations) that will assist the ATO in exercising more favourable terms before the matter is deferred to stronger action tactics.
For the sake of your credit report alone (let alone their mental and physical health), you don’t want court proceedings noted on your credit file. Talk to us today about solutions and steps that you can take to avoid court proceedings.
How can we help?
If you have any questions or would like further information or you are seeking property tax advice, please feel free to contact our office via email –info@investplusaccounting.com.au or phone 02 9299 7000 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail. You can arrange a free 15 minute no obligation chat to discuss your options. Please arrange an appointment with our office by clicking here
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