You may have recently seen an advertising campaign called “Your Right to Know”. Covering many issues, media freedom among them, one of the main focuses of this campaign asserts that ATO has the power to take money directly out of your account without informing you. The thing is, do you really believe that the ATO has this power?
The Australian Taxation Office (ATO), is already one of the most powerful institutions in Australia and the notion of them being endowed with a broader power sounds daunting, especially to small business owners. In the past few years, the government engaged with the taxpayers to ensure they meet their tax obligation properly. However, further actions will be taken by the ATO when the taxpayers don’t pay off their tax debt on time, have several overdue payment instalments, or don’t actively participate in solving a debt problem. In certain circumstances, the ATO will freeze your bank account or other personal assets if they think you are at a high risk of default.
One of the reasons why the ATO exists is to help the Federal Government collecting money from taxpayers. According to the Commissioner’s Report, for 2016-17:
- 88% of the tax debt has been paid off before due date
- 7% ($33.4 billion) of the payment has been made within 90 days after the due date
- 1.3% ($6.1 billion) has been paid off within one year after the due date
- $15 billion was unpaid after a year
At the end of the financial year 2016/17, total undisputed tax debt was $20.9 Billion
The formal powers listed below were given by ATO to ensure taxpayers comply with their tax obligation:
- Issue a garnishee notice to a third party — such as a bank. For salary wage earners, the ATO can ask your employers to pay a portion (normally 30%) of your salary until your tax obligation has been cleared up. For business, ATO can even get access to your merchant facility given the credit position.
- Issue a Director Penalty Notice (DPN) — director can be made personally liable for Pay As You Go (PAYG) and Superannuation Guarantee Charge (SGC). The government is hoping to expand their liability to the unpaid GST liability. If such debts are owing, the ATO can send director a DPN to initiate a legal procedure.
- Direction to pay superannuation guarantee (SG) — if the employer receives a direction to pay SG, any unpaid SG Charge must be made within a certain timeframe. Failing to do so will be treated as a criminal offence and may result in enforced penalties and/or imprisonment.
- Impose a freezing order — for instance, to your bank account. That is, the ATO has the power to freeze your account without informing you. They can even shut down your bank account if necessary, particularly when they believe you have other source of income. Generally, the order is not issued by the ATO; rather, issued by the court.
- Issue writs or warrants of execution, or warrants of seizure and sale — for example, they can require you to sell certain assets to pay off your tax debts.
- Winding up — liquidate your company or bankrupt you. Most people wouldn’t believe the ATO would take such aggressive action. In actual fact, the ATO can commence the procedure at any time before any dispute is settled. In 2017-18, the ATO voluntarily bankrupted 470 taxpayers and wound up 1282 companies. The ATO would argue that in most cases, winding up is inevitably enacted to prevent further debt.
Please take good care of your tax records. You will need to respond promptly if your tax affairs are questioned by the ATO. The longer time you take in providing the relevant evidence, the more severe the subsequent actions taken against you will be.
Based on the discussion above, does the ATO have power to take your money out of your bank account? With the support of the court, they can, and they can do much more.
By Robert Liu