The ATO conducted a series of surprise raids in Sydney in recent months, signalling a crackdown on suspected phoenix operations.
The move is part of the ATO’s efforts more broadly to proactively pursue those business and individuals not paying their taxes, either through misunderstanding or otherwise.
Crackdown on phoenix businesses
Phoenix activity refers to businesses that deliberately incur debt and then liquidate the company to avoid paying creditors, taxes and employee entitlements.
The company’s assets are then transferred to a new entity that continues operating the same or a similar business under the same ownership.
This allows such companies to undercut their competitors and confers a substantially unfair and illegal advantage.
As part of its ongoing investigations into such activity, the ATO reported raids had been carried out on a number of businesses and residences in the Sydney metropolitan area. Deputy Commissioner Michael Cranston said the decision not to give prior notice of the visits was not made lightly.
“Sometimes the element of surprise is needed to get a result, particularly when dealing with companies we suspect are setting out to cheat the system and where records may be destroyed if we give notice.”
Mr Cranston said the information obtained in those raids would be “invaluable in deciding whether to pursue further compliance action with the individual companies, as well as providing more intelligence about potential phoenix operators, phoenix facilitators and the methods they use to try to undermine the tax and superannuation systems.”
According to the ATO, phoenix activity costs the Australian economy up to $3.2 billion each year, with honest businesses losing almost $2 billion in unpaid debts and the non-supply of purchased goods and services.
Increased enforcement activity
There has also been a significant increase in ATO enforcement activity regarding laggard taxpayers.
The ATO is sending a clear message to those behind in their payment obligations that it is intent on identifying and recovering unpaid taxes. Other ATO powers have also been exercised in an effort to recover outstanding amounts, including issuing garnishee notices and Director's Penalty Notices. An upgrade for its internal monitoring systems is also planned, enabling it to initiate recoveries earlier.
Commissioner Chris Jordan prefigured the increase in initiated enforcements recently when presenting to the Tax Institute's 30th National Convention.
With unpaid taxes at $19.5 billion in 2013/14 (up from $14.5 billion in 2009/10 as calculated by the ATO), Commissioner Jordan advised the ATO's new approach would include:
- Increased flexibility and tailored approaches regarding payment arrangements
- Earlier intervention to prevent debts escalating
- A focus on the viability of businesses concerned
- Deploying legal enforcement at an earlier stage.
If your client is having difficulty meeting their ATO obligations, advice on potential options is available from any member of our team or through your usual Grant Thornton advisor.