Robyn Jacobson
Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson, the senior advocate at The Tax Institute and your host of today's podcast. On the show, I chat with some of the tax profession's brightest minds, drawing on each guest unique perspective to give you valuable and practical insights you may not hear every day. We hope you enjoyed this episode of TaxVibe. Recorded live at The Tax Summit at the ICC in Sydney. Today I'm joined by Andy Milidoni, CTA, partner at Johnson Winter Slattery, and he specialises in all aspects of taxation, revenue law and trust law, and some aspects of superannuation law. He advises both public and private corporate groups, SMEs, high wealth individuals across industry sectors and he also works closely with a range of intermediaries such as accountants, business and corporate advisors, liquidators, financial planners and court appointed trustees and guardians. Thank you for joining us at The Tax Summit, Andy.
Andy Milidoni
Thanks, Robyn. Thanks for having me.
Robyn Jacobson
And your session was talking about the changed position, the firmer action that the ATO is taking in relation to texts and what sort of support that practitioners can provide their clients. So I wanted to unpack that a bit more with you. It is a changed environment and when we look at historically, the ATO’s has of course had very wide ranging powers and there are actions they can take when it comes to debt. But we know during the pandemic, the was a directive to say take it easy. We don't want businesses going under, we want to keep them afloat. So we did see very generous remissions of penalties, general interest charge, shortfall interest charge, generous payment arrangements and the firm direction of things like direct penalty notices. And we'll talk about all the different types of things they can do. Also, the foot came off the accelerator. Whether that went too far, people can, talk about that and make their own surmises as to whether that was appropriate or not. But it does seem that some businesses have perhaps taken that and expected that some new normal, which it's not. You know, and I want to talk through the levels of text it that we're now seeing. We are hearing anecdotally through our membership that the ATO is taking stronger action. And they've effectively said this themselves in their public statements. So can you talk us through what does the current landscape look like? What is the amount of debt that is now owing? Who owns it, and is this ATO action appropriate?
Andy Milidoni
Well, I think that's right. I think since Covid and probably since, early 2022, we've seen enormous increases in it collection activity. I think just recently in a speech made by various ATO officials, I think the approach of the ATO moving forward from this point on is to go back to being an old school tax collector. The point I think to make here is, is that, you know, Uncollectible debt stands at 50 bill. And the has taken the view of, well, there's a risk management aspect here in that, this historical debt which is very high and in fact much, I think doubled since before Covid. And there'll be more debt to collect. So they're buying the bullet and, they're putting their foot down on collection. And we've seen that through, the legal recovery actions. We've seen so many thousands of DPNs being issued, garnishee orders, lot more, engagement in it or at least enforcement. But, ATO officers chasing debts, chasing agreements is a big thing as well. A lot of what I'm sort of saying is there's a bit of an attitude which, I know that accountants and other advisors are trying to get on top of, and that is some taxpayers are saying, look, I won't lodge because that means I won't have the debt. But that's only really compounding, their own, their own personal circumstances when it comes to debt. But the reality is, is that the ATO are being told to collect the debt, and that, I think the, sort of the generous approach is, I think, well and truly over.
Robyn Jacobson
Well, they couldn't keep handing up money forever. So the role of handing out all that support, which, again, people have their own views as to whether that was or wasn't appropriate, but it still did its job. They're now at a point where they've got to go back to being a revenue collector. And the figures are quite astounding. If you look at the representation by the SME sector in that collectible debt. It's about two thirds of it. It's disproportionate.
Andy Milidoni
Yes, it is a lot.
Robyn Jacobson
Yeah. So why is that? Because there's always this focus on big end of town and whether they're doing the right thing. But in fact the problem seems to be more at the SME end.
Andy Milidoni
I think that's right. And a lot of that debt is carried over from the pandemic. I think we're in a pretty tough economic climate at the moment as well. And in some sectors of the economy, there's a sort of the double whammy of costs going up and revenues dropping, and they're being squeezed and that's hitting cash flow.
Robyn Jacobson
Yes.
Andy Milidoni
And unfortunately, sometimes the first things that aren't being paid are the, the tax, the tax collections and where it's pay out withholding, for example, it's opening up directors to personal liability through the issue of DPNs. And so unfortunately, it's mainly in the SMB sector, private groups. And they're saying most of that debt is as a result of the nonpayment of activity statements, which broken down is pay withholding and GST liabilities.
Robyn Jacobson
Yes. Both of which are now part of the DPA regime. So historically, of course, it was just withholding. And then SGC came into it and then we added more recently GST and perhaps less of an issue, but luxury car tax and one equalization.
Andy Milidoni
Do the other, you know, the other indirect taxes.
Robyn Jacobson
So could you explain this three month rule that exists because people are often a bit confused about this having to do with the reporting and the nonpayment of when directive penalty notices can actually kick in?
Andy Milidoni
Yes. The important thing about, responding to a DPN is that what you should be doing even before a DPN is issued is getting your lodgment seen. So in relation to pay a wage, withholding and GST and the others, except for superannuation guarantee, you must lodge within three months of the due date of the lodgment. If you don't do that, then any DPN that you get is what we refer to as a lockdown. And what that means is that, in the event you haven't paid, you haven't lodged within a three month period when you get your DPN. The only options you have, to pay it because with the, an option under DPN includes putting the company into some form of external administration, and you don't get that option if you haven't lodged within the within the, the three month period. So that's what the three month means. And unfortunately, a lot of people I think when things are going southwards, they sort of going back to what I'd said earlier, we won't lodge because the debt's not there and we'll deal with that later. But the take home message is, is that even if you don't have the funds to make the payment, make sure that your lodgment are up to date. So if things don't turn around in a reasonable period of time, and you can address the debt through payment arrangements and other engagements with the ATO, if it gets to the point that the ATO issued you the DPN, you have the option of putting the company into liquidation and removing the personal liability. DPNs are used as sort of the first step towards, if it gets to it, putting the putting the company into liquidation. It's one of the first steps that the ATO, takes in the in, in the journey towards, putting the company into liquidation.
Robyn Jacobson
So leaving aside for a moment the three month rule and direct penalty notices, is an an unrealistic and perhaps foolish move. To think the ATO is not going to find you are not going to be interested that if I don't lodge and don't pay, they'll somehow forget about me.
Andy Milidoni
I think it's look, in some cases, you may be able to fly under the radar, but only for a period of time. It really all comes to a head. And what we've found, we've had experiences where there's sometimes, Look, the systems are so more, so much more sophisticated. There's a lot more talking between systems, etc.. But what we've found is that, taxpayers might be on the tax officer's radar for something else, and then they pull a thread and then they, they see what else is going on in terms of non lodgment, debt that's piling up. And as I said, often times it might be something else that they're looking at. And then it opens up to everything else. And then that's where I think taxpayers really are in a world of pain.
Robyn Jacobson
Andy, can you run us through the powers the commissioner has to collect it? What is this firmer action that we're referring to?
Andy Milidoni
Yeah, Look, powers include, issuing garnishee notices, issuing DPNs, freezing orders. There's the offsetting. Obviously, which is where, a credits owed in relation to one part of, a lodgment, but is then withheld where there's another debt. There's the general insolvency regime and bankruptcy regime that's available to the commissioner. And the starting point there would be, the issue of statutory demands and other things. So they're all the more formal legal recovery, actions that the commissioner can take. Now, whether he takes those or not, is really as a result of everything else failing.
Robyn Jacobson
Yes.
Andy Milidoni
And we've, we've seen examples where and it's not with or not with everyone, but through examples where you've got the taxpayer that literally puts their head in the sand and pretends that this is not happening and then let a year go by another year the notices are coming in all the other.
Robyn Jacobson
And then when engage with advice.
Andy Milidoni
Just won't engage because I think, there's a it's like a slippery slope. There's sort of so far to falling off the edge of a cliff. There's obviously other things going on with the business, and maybe in the personal life it is a world of pain, but people get to the point where they put their heads in the sand. I don't want to, deal with it. And then you say the much more formal recovery action. We had a client that, got to the point of a statutory demand. It wasn't a huge amount of money. A lot of other things were going on. There were other debts within the group, but they let it get that far down where, they actually could have paid it, but they were the head they had so far in the sand that they just were. We're not getting on top of these things. They actually end up paying the statutory amount because that really that was the first point before the ATO was going to apply for a winding up order. So, we're very much in these formal legal, legal recovery powers really come about where the ATO has, has really at the end of their tether as well.
Robyn Jacobson
Yes.
Andy Milidoni
And, and oftentimes they'll resort to those powers, sure, for outstanding debt. But they say other risks.
Robyn Jacobson
Would you also throw a departure prohibition order into this?
Andy Milidoni
Oh, if there's a risk of the, taxpayer leaving the country. So there's the DPOs. So, yes. Certainly.
Robyn Jacobson
Yes.
Andy Milidoni
And, yeah. So that those all make up, legal recovery, actions that, that, that the ATO can take.
Robyn Jacobson
Is it fair to say that when a matter hits your desk, it's already escalated to a pretty serious point? In other words, you're the lawyer, not the accountant. And are they the ways or approaches that accounting practitioners can take to try and deal with these well before everything elevates or escalates to such a point that if they go to bring the lawyers in to fix everything..because I would have thought the cases you see are going to be the much more heightened ones.
Andy Milidoni
Yeah. And that's, that's right. Robyn, as a tax lawyer, we get involved towards the very end when, when all the alarms are going off and the red flags are being, should I look at that? I have enormous respect for the accounting profession that I do wonderful work there. They're the trusted advisors to to to their clients and taxpayers. I work a lot with accountants, and I see the very good work that they do. I think, the good practices I'm saying with accountants is that, they encourage their clients to keep lodgment up to date. Even despite this idea, we won't lodge because the date won't be. They don't know lodge because they understand that it gives options when it comes to DPNs. Closely, I saw them with the tax office and negotiating payment plans as soon as possible, but also keeping in touch with the tax office when circumstances change. So there's an ongoing liaison with the tax office. And I think, look, we all have our sort of views about, tax office behaviour. But overall, I think if you continue that engagement, keep them informed. Then I think together the debts can be managed. Now, if it gets to the point that the company is going looking at going to some form of external administration, that might be that that might be the case. But by keeping the tax office informed and, keeping that engagement going, I think stays the tax office away from a lot of the more formal like recovery action. So take, for example, Garnishee notices we often call because a client might have been have received a Garnishee knows always in the most, unexpected circumstances. It creates a lot of turmoil.
Robyn Jacobson
And when they can least afford it.
Andy Milidoni
When they can least afford it, one minute they think there's money in the account, next minute it's not there.
Robyn Jacobson
Yes.
Andy Milidoni
So and that's an example where, I see that often happens where there's been very minimal engagement. Or if there has been, there hasn't been compliance or there hasn't been follow up. So I think the take home message is keep your lodgment all up to date. Talk to the tax office. Have the, accountants are talking to their clients. The clients are open with the accountants. Really try and keep engagement to the highest possible level as possible. And also where money does become available, make payments and, encourage, additional payments on the repayment plan or to chip away at the date to demonstrate to the ATO so that, there is a history in relation that particular payments being made, I think, with a debt collector, whether it be the ATO or someone else, if they see that there is a willingness to get on top of the debt and to make payments, it's really not in their interest to push the more formal buttons, because that costs money as well.
Robyn Jacobson
Of course it does.
Andy Milidoni
It cost money and time, But the opposite is no engagement. Gone. I will head in the sand.
Robyn Jacobson
They don't like it when you go silent.
Andy Milidoni
You're pushing the the collector to to stop pushing other buttons to get the reaction. So yeah. So I think the short of it is liaison and engagement.
Robyn Jacobson
An anecdote I heard many years ago. I remember the program Wheel of Fortune.
Andy Milidoni
Oh yeah.
Robyn Jacobson
Now, apparently there was a taxpayer who owed some money. I don't know how much. Obviously the ATO had been trying for some period of time to try and collect this debt, and I think you spelt it for 30 the afternoon or something. And this particular ATO officer was home that day. Was this a well before Covid? I was watching the show when this taxpayer appeared on the show.
Andy Milidoni
Yeah.
Robyn Jacobson
And he immediately rang the station's producers and said, you know, I want to issue a notice that fellow who's on your show because he owes us some money.
Andy Milidoni
Yeah.
Robyn Jacobson
And the station said, don't you know that we pre-record this.
Andy Milidoni
Was already on the money to go out the door, so I could see the taxpayer……..
Robyn Jacobson
So what are you seeing and hearing out there with the the escalated action? Do you see that the ATO is cooperating because we are hearing increased feedback, and I don't know whether anything has changed as such at the ATO said about payment arrangements not being quite as forthcoming as they might have been. Now, we do know that there's firmer action in back in Covid days, but is it getting more difficult to get a payment arrangement?
Andy Milidoni
I'll say it is. I think there's a number of, if you've got a taxpayer that's just fallen on some hard times, has a very good compliance history. My experience is that you could get a payment arrangement between 6 and 12 months with that too much fanfare and without too much grief. I think with this sort of the repetitive, the taxpayer that's gone through the ups and downs over the last few years has put a few payment arrangements, and there's been a few, some noncompliance around that, but eventually got through it. It's it is for though for those taxpayers, it has become much harder. Anything beyond 12 months is much more difficult. More information, more submissions, more trying to demonstrate that, the taxpayer can go to third parties to get funds before the ATO, entertain much longer arrangements. I've seen, some taxpayers having to give security over the date. It is certainly much tougher. What I'm hearing from accountants is, is that, it's, the it's certainly is much harder to negotiate and the ATO are taking, a little bit more of a, a tougher position on how generous payment arrangements will be.
Robyn Jacobson
What advice you've got for practitioners, particularly the accounting practitioners, who might be perhaps a little closer to the coalface than you are in terms of the the direct dealing with the client and that taxpayer.
Andy Milidoni
Look, I think the advice is, it's sometimes it's the difference between is the business going to survive or if it's not, if there's a genuine belief that a longer arrangement is needed and that that's going to help the business, because really the differences, we either, step on the business and have the ATO sort of take more formal action, and it basically is wound up or trying to put forward a pathway where, the business can survive, but the ATO can get their money back, perhaps in a much, a much longer time frame, I think for accountants, I think they know a lot of those issues. But to work on pathways with the tax office, but also with the clients to demonstrate that it is worth entering into that longer payment arrangement, that everyone's risks are being sorted in that the ATO obviously want to collect the data, but they want to be able to say that the money is going to be can't be forthcoming. So I think we just need to get a little bit more creative in the way we approach payment plans with being able to juggle a number of these things. So, I think the advice is to probably, provide more comprehensive submissions, actually demonstrate to the idea that there is that pathway, that there is some and unusual circumstances affecting the business that can be traded through. And to really go in and advocate for the tax taxpayer, but also to understand the position as well.
Robyn Jacobson
It is such a tough question to ask though, you've got a business owner. They might have set up the business 40 years ago, five years ago. Whatever their heart, their soul has gone into this to confront the idea that they may need to shut down the business, give up the business, that it's not been financially, economically successful. It's not just about the financial aspect. There's all that pride and all that sentiment caught up in it and trying to get the client to acknowledge that and face it and deal with it. Very difficult.
Andy Milidoni
It is. And I mean huge financial and personal investment. The other thing that we find, Robyn, is sometimes you've got, you know, it's a it's quite a great it's a great business. And then what happens is an audit comes along and I go back five years and, it's not because there's been some sort of, deliberate attempt to avoid the payment of tax or the assessment of liabilities or whatever, but something's gone wrong. They've gone back and now they're confronted with, the payment of back taxes.
Robyn Jacobson
Yes.
Andy Milidoni
So you're in a tough economic environment looking forward. You're barely paying your, meeting your liabilities. And then you have this audit and then you've got taxes going back for years with interest and penalty. That can be quite a shock. And, having to negotiate payment plans around that historical date can be, very challenging. And this is where I think, you know, I'd like to think the state would step up and recognize that he's a situation where no one sort of saw this liability. Or maybe. Yeah, sure, they maybe should have sort of seen it, but for whatever reasons and I've seen it, in some circumstances where it was just very unfortunate that the businesses got themselves into that position. And he comes in audit. And you'd like to think that in that scenario, there would be, more understanding in their negotiating of those payment plans because not only do you have your debts moving forward and those liabilities, you also have to then find the money to try to, to fill those back taxes.
Robyn Jacobson
I've said for years that things can go undetected for a long, long time until and unless you get an audit or this death Or this divorce.
Andy Milidoni
Yeah.
Robyn Jacobson
And if you're unlucky, you have all three happen at the same time.
Andy Milidoni
As I say, when it rains, it pours.
Robyn Jacobson
Yeah. And it can unravel things that you did not expect. So, Andy, as we close off our discussion, any final tips or ideas or suggestions as to how you can help you navigate through this?
Andy Milidoni
So we're in a, I guess, a bit of an economically volatile environment, particularly for some sectors. There's a lot of new tax law coming through. We've heard the ATO is focusing on the the collection of that $50 billion of outstanding liabilities. I think a tip I would give is, if there is, if a business can find the time to engage with their accountant and tax lawyer to undertake just to review. So everything's going well, maybe submit to a, have a review of the business, look at what the the risks are from a tax, perspective. Try to, get ahead of any particular liabilities that might be on the horizon. That might not be sort of expected. Now, do it in a time where there's no distress, because if changes, need to be made, they should be made at a time when there's no date on the horizon, no one's chasing anything. And if there can be some changes to, put the business into a better structure or something that's more fit for purpose. I would encourage that because there could be some really good stuff that comes out of the review, and it at least gives, business owners, a bit of a snapshot as to what the next two, three, 4 or 5 years looks like. And as much as possible mean. If we had the benefit of a crystal ball, and we could look into that and see what's on the horizon, obviously we don't have that. But if we can just get ahead of ourselves and, see what things might look like and what changes that can be made, because oftentimes when we do hit distress, there's an appetite there. So let's change this. Let's change that. But often times it's just too late.
Robyn Jacobson
Yes. So this is the equivalent really of going to your dentist for a health check, going to the doctor once a year for a health check, or taking a card and salute the mechanic to get it checked out.
Andy Milidoni
Yeah. And, we do we've worked with accountants to do these reviews. And often times when we can sit back and go through these things, business owners, it's a very good opportunity for them to sort of do a bit of navel gazing. Yes. And to oftentimes the process identifies other issues that no one really expected. And people are very grateful for. Yes. Because, when we're all busy trying to sort of make money and run the business and do everything else, we're not these things aren't on our radar. And it's a really good opportunity to do that.
Robyn Jacobson
Andy, thank you for your insights. Thank you for your session. And, there's a lot for people to think about that. I think the key message is if you've got to text it, engage, seek advice, talk to your accountant, talk to your lawyer. Yeah, talk to the ATO.
Andy Milidoni
Absolutely. And thank you. And thank you, Robyn. And thank you to The Tax Institute.
Robyn Jacobson
You're very welcome. Thank you. Thanks for listening to this episode of TaxVibe. I've been chatting with Andy Milidoni, CTA, partner at Johnson Winter Slattery. If you enjoyed this episode, we'd love for you to subscribe, rate, and review TaxVibe wherever you listen to your podcasts. We welcome any suggestions and feedback to catch all the latest from TaxVibe and The Tax Institute. Join us on LinkedIn. If you're interested in being at the centre of the tax conversation, a membership with The Tax Institute could be just what you need. Stay current and connected with tangible, real world benefits. Learn more at taxinstitute.com.au. Thanks again and we look forward to joining you next time.
