The 2014/15 financial year may be drawing to a close, but the ATO is busier than ever, ramping up its efforts to crack down on businesses with long overdue tax bills. The ATO's muscle flexing is having serious repercussions for businesses that have delayed meeting their tax obligations, for whatever reason.

The ATO takes action to wind up a company if it has failed to pay its debts and no suitable payment arrangements have been made. Such circumstances are generally taken as clear warning signs that a company may be insolvent and pose a significant risk that creditors will not be paid if the company is allowed to continue trading.

Insolvency practitioners have reported seeing a significant shift in emphasis at the ATO, citing a record 556 wind up applications last month alone as proof that the ATO has now abandoned the former soft approach shown to tardy tax payers during the GFC. May's high number of wind up applications accounts for more than half of the of the ATO's annual average for such measures and indications are that June lodgement figures will almost certainly be even higher.

However, businesses that take action before the ATO does place themselves in a strong position to negotiate. KDA liaises with the ATO on behalf of clients to develop payment plans that meet their ATO debts and avoid the actions that could see them put out of business.

The ATO says its recent actions are not indicative of a desire to simply clamp down on recalcitrant SMEs. Rather, it claims that this is part of a broader response to concerns expressed by numerous community and business associations that an increasing number of businesses have been deliberately dodging their responsibilities for years and getting away with it.

Assistant Commissioner, Thomas Ryan, has clarified the ATO's position, stating that it's about taking a 'timelier and stronger' stand. Reiterating that the issuing of a wind up notice was a last resort, he stressed that earlier intervention and the application of other powers – such as garnishee notices requiring a third party to pay tax money owed – could avoid the closing of a business altogether. In an interview with Business Insider , Mr Ryan made it clear that the ATO was "always willing to work with taxpayers who are having difficulty paying, but are willing to work with us".  

However, there appears to be little doubt that the ATO is standing firm. One indicator is the apparent lowering of the debt threshold at which action can be taken from $300,000 to approximately $100,000, with some sources believing it could actually be as low as $30,000. The ATO meanwhile, is adamant there is no threshold, pointing out its policy of judging each case on its merits, including the size and nature of the debt and the future possible income of a business.

Critics remain sceptical of the ATO's claims of a generalist approach to the issue, stating such actions are a clear case of targeting small business and seemingly at odds with the small business package included in the recent Federal budget.

Whatever the ATO's position, it's clear that the room for businesses to manoeuvre is shrinking. KDA recommends that if your business is experiencing difficulties meeting its tax obligations, or anticipates that it will do so, you act before you hear from the ATO. Our team can advise you on the best course of action.

If you'd like further advice on wind up applications or if you need help identifying the best option for your circumstances, contact KDA Group on 02 4861 8383.