Thinking | 24 April 2020
Australian Taxation Office clarifies what COVID-19 relief measures are available
Consistent with the economic reforms implemented by the Federal Government, the Australian Taxation Office was quick to respond and offer businesses impacted by COVID-19 the opportunity to take advantage of relief measures. Over recent weeks, the ATO has provided further clarity regarding what relief is potentially available.
On 20 March 2020, the ATO announced that it would be implementing a series of measures to assist those businesses experiencing financial difficulty as a result of the outbreak. The ATO said it was willing to discuss with businesses potential options including the short-term deferral of PAYG withholding tax, GST and excise obligations.
The ATO has now refined its approach to the relief packages available, including by confirming that:
- the relief options available to a business will be assessed on a case-by-case basis; and
- large businesses may not be able to defer payment of PAYG withholding tax, GST and excise obligations (unless exceptional circumstances apply).
It is important that businesses understand their options so that they may seek targeted relief when approaching the ATO.
Businesses should also be aware that liability to the ATO will continue to grow if amounts owing are not paid. Further, the ATO still has its powers to seek recovery of any unpaid tax; these rights have not been put on hold. Critically, businesses must continue to comply with their tax reporting and payment obligations through this transitory period, and should be proactive in discussing their liabilities with their advisors and the ATO.
Following the initial set of reforms outlined by the Federal Government in March 2020, the ATO released a statement which encouraged any businesses impacted by COVID-19 to contact the ATO to discuss possible options for relief. At the time of the announcement, the ATO recognised that the uncertainty associated with the economic climate meant that the ATO would be required to be flexible in exactly how they offered support to affected businesses.
As part of their March statement, the ATO stated that they might consider the following possible support measures:
- deferring by up to six months the payment date for amounts due through the business activity statement (including PAYG instalments), income tax assessments, fringe benefits tax assessments and excise;
- remitting any interest and penalties incurred on or after 23 January 2020;
- allowing affected businesses to enter into low-interest payment plans to help them pay their existing and ongoing tax liabilities; and
- allowing businesses who are ordinarily on a quarterly reporting cycle to convert to monthly GST reporting, to enable the business to obtain quicker access to GST refunds.
The ATO warned that affected employers would still be required to meet their ongoing superannuation guarantee obligations.
Importantly, the support measures would not be automatically implemented. For businesses impacted by COVID-19 to take advantage of the measures proposed, they are required to contact the ATO to discuss the assistance measures which may be available to them.
Not unexpectedly, it appears that businesses of all sizes were quick to take up the offer to defer payment of their PAYG withholding, GST and excise obligations.
Clarification of the ATO’s initial announcement: large withholders
On 30 March 2020, the Federal Government announced the ‘JobKeeper’ initiative. Under this program, businesses and not-for-profits impacted by COVID-19 can access a wage subsidy from the Federal Government to continue paying their employees.
Now that the initiative has launched, the ATO has clarified its position on its discretion to defer PAYG withholding, GST and excise obligations of large businesses and withholders.
In particular, the ATO stated that despite its initial announcement, it does not intend to allow large businesses to defer these obligations. That said, the ATO has carved out an exception so that large businesses may be able to defer these payments where:
- insolvency of the company is imminent, meaning that the company may soon not be able to pay its debts as and when they fall due;
- the company provides evidence to the ATO that it is unable to obtain funding from other sources, such as realising liquid assets, capital raising or obtaining external finance; and
- if the deferral was to be granted, the company would remain financially stable and could continue to meet its obligations for the foreseeable future.
The ATO said that if an application was made, requests would be scrutinised strictly on a case by case basis.
From the announcement, it appears that the ATO sought to clarify its position only in respect of ‘large withholders’. While it has not openly extended these restrictions to small and medium-sized businesses, all businesses seeking relief should proactively speak with the ATO with a view to entering a formal arrangement.
Directors are not excused from liability
Tax lodgements and debts
Directors of all entities should continue to be mindful of the ramifications that late lodgements and/or payments may have for them personally.
The ATO has specifically cautioned directors that, even if a deferral is ultimately granted, the company is still required to make payment of the amount owing by the deferred payment date. A failure to do so allows the ATO to take enforcement action against the company, or against the director personally by issuing a Directors’ Penalty Notice (DPN).
If the deferral is not granted, clearly the company will be required to make lodgements and payments in the ordinary course. A failure to do so can also lead to enforcement action.
From our experience, currently the ATO is not actively enforcing many of its claims. However, this approach will not extend to all claims, nor will it last forever. That the ATO has made specific comments regarding DPNs indicates that it is not taking enforcement action against taxpayers ‘off the cards’ over the coming months.
We also note that, if a company does go into liquidation during this crisis or afterwards, there will not be any moratorium on directors’ personal liability under the voidable transaction regime.
Under the voidable transaction regime, a liquidator can make a claim against the ATO (or any other unsecured creditor) to seek to ‘claw back’ any amounts paid in respect of PAYG or superannuation guarantee by the company to the ATO in the six months before the appointment of an administrator or liquidator.
In turn, the ATO can then make a claim against the directors personally for indemnity. That is, if the ATO is required to repay any amounts paid by the company to the ATO in the six months before its external administration, the ATO can seek to make the directors’ personally liable for those amounts. There are of course exceptions and defences which the director should consider in such circumstances.
A liquidator has three years from the date of their appointment to issue such a claim against the ATO, which then often leads the ATO to subsequently make a claim against the directors. Although a company may go into liquidation now as a result of the pandemic, by the time that these claims are ultimately brought, we doubt that the ATO will soften its historical position to enforce its rights of recovery against directors.
- The ATO may continue to refine the policy reforms it has implemented in response to COVID-19. Understandably, no formal policy, guidance or legislation has been passed to formally implement the ATO’s policies of support for moratoriums. Rather, these will be assessed on a case-by-case basis by the ATO.
- The ATO has invited all taxpayers affected by COVID-19 to approach it to discuss the options available to that particular business in order to keep it afloat. Although the outcome is not guaranteed, it is recommended that businesses experiencing financial difficulties take steps to at least engage in a discussion with the ATO.
- Until a formal arrangement has been entered into, businesses should continue to take a conservative approach. The ATO will not grant relief to taxpayers as an automatic right.
- The relief measures do not absolve directors of their personal liabilities. It is important that lodgements and payments are kept up to date, otherwise directors will be liable for any potential penalties or enforcement action which may be taken against them.Directors must also be aware that if a company is wound-up, there is a risk that they may be liable to indemnify the ATO for any amounts clawed-back by a liquidator under the voidable transaction regime. Professional advice should be sought on these points.
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