Disputes between the ATO and the Taxpayer

Background The background in this case is talking about the global financial crisis (GFC), the Australian economy is being downturn, and Australian Taxation Office has an increment of the tax debt, from $16.6 billion to $17.7 billion in during the 2011 to 2012 period. The Inspector-general of taxation (IGT), Mr Ali Noroozi who has an announced his the new work program to improving the tax administration - community- based consultation process. The stakeholders feeling dissatisfaction on that tax administration, as the ATO collect the tax using the overdue recovery approach and disproportionate action and use of external debt collectors. These action is not legal, therefore commonwealth ombudsman have received 23% of all complaints to Mr Ali Noroozi. Therefore Senator the Hon Mathias Cormann mention to Standing Committee on Tax and Revenue, the Committee to inquire and report on the disputes of the ATO and taxpayer, also focus on the ATO’s tax collection, and the small business will be examined in these issues. According to the background, using the Director Penalty notices is a battery method to get the balance between the tax collection and legalisation to ATO and stockholders. Introduction Firstly is the introduction part, before discuss the disputes between the ATO and the taxpayer, the definition of Director Penalty Notices and the pay as you go (PAYG) is important to know, as they are core elements on this case. Director Penalty Notices According to the ATO the definition of Director Penalty Notices is that, the company directory that has the responsibility to meet and do the action to pay the pay as you go (PAYG), it is withholding and superannuation guarantee charge (SGC) obligations. (ATO2014).

• The meaning of Pay As You Go (PAYG)

The simple idea is that, the PAYG is instalments of income tax payment, under the Income Assessment Act 1953 schedule 1 chapter 2 parts 2-1, which is an introduction of PAYG system. The PAYG is a system for businesses and individuals to pay instalments of their expected tax liability on their income from employment, business, or investment for the current income year (Study guide).

• The time of paying PAYG and the Calculations

Under the Taxation Administration Act s45-50 the PAYG instalment quarterly commissioner first gives the taxpayer an instalment rate. (MTG) In addition, under Taxation Administration Act s45-60, if the income year ends on 30 June, the taxpayer’s instalment quarters and the day of due date of instalment will be deferred to approach to the taxpayer. I.e. 30 September to 28 October, 31 December to 28 February, 31 March to 28 April and 30 June to 28 July. Also the taxpayer not only can pay by quarterly, but also can choose other option paying the PAYG instalment at annually and monthly under the Tax Administration Act. Under s45-70 which claims that the annual PAYG instalment payer must pay before the 21st day of the fourth month following the end of the income year (MTG). Also at the same section this is allow the taxpayer paying the PAYG instalments for the monthly, it must be undertaken on or before the 21st day of the next month, unless specified by other means by the commissioner (MTG). The other part is that, the calculation of the PAYG instalment, under the Taxation Administration Act s45-110 the formula of the PAYG is applicable instalment rate multiply instalment incomer for the quarter. (MTG) Also, the instalment rate will be according by the Taxation Administration Act s45-15, the payment to PAYG will be depends on the Commissioner has by written notice to given to the taxpayer. The ATO’s Approach According to the background, the stakeholders are felling dissatisfaction to the ATO’s action. When the taxpayer not or late to pay the tax, ATO will take action to the taxpayer when new work program for improving the tax administration is being implemented, such as the actions are disproportionate action, use of external debt collectors and the overdue action. Normally the taxation offices just need to sand the message such as letter to the taxpayer to pay tax. According to the s45-70 the payment time of PAYG, the taxpayer is initiative to pay the tax undertaken on or before the 21st day of the next month, fourth month or quarterly, so the ATO need not to do any additional action in the normal circumstance. When the taxpayer or businesses not pay the tax payment, the ATO should make the legal action to against the taxpayers. There have some factor of the director is not paying the tax, 1) default on tax payment repeatedly, 2) operating a new business due to avoid financial obligations by liquidating, 3) the debt is continuing increase but the business have to plan to pay the tax obligations 4) avoid contact with the ATO (Director Penalty Notices and Enforcement). Therefore the ATO can use the method of ‘Firmer action approach’ and Director Penalty Notices, that’s allow the ATO meet the requirement of the administrative and legislative. -Firmer action approach The first approach is that, ATO will issue the ‘Firmer action approach’ the statement entitled. According to ‘Firmer action approach’ the following the ATO will do, 1) the ATO will issues a notice to third party which owns the taxpayer money or holds money behalf of the tax payer, ATO will request the third party to pay the tax payment to ATO. 2) Requested by the summons or statutory demand to begin the bankruptcy or wind-up proceedings 3) this the directorpenalties, pursuing company directors personally to pay the unpaid super guarantee charge and the PAYG withholding component of the debt, 4) issuing a writ/warrant of execution authorising to sale of the taxpayer or the company assets to recover the tax 5) pay a bond or provide security, but this action is not always executed.

• Director Penalty Notices

The Director Penalty Notices is a powerful tool used by ATO as it can against the company who hold the debt of the Pay As You Go and the following sections are talking about when and why the ATO should issues of the notice. Under the Taxation Administration Act 1953 s269-25 (1), the Commissioner must give notice of penalty; the Commissioner must not commence proceedings to recover from the taxpayer a penalty payable under this Subdivision until the end of 21 days after the Commissioner gives you a written notice under this section. The s269-25 (2) set out what the Commissioner thinks is the unpaid amount of the company's liability under its obligation.

• Penalty under the Taxation Administration Act

Also, the penalty under Taxation Administration Act s269-20, the legal action can guarantee the ATO will make right decision to the taxpayer or director who not paying tax. Under this section’s subsection will describe difference factor the taxpayer or director may breach of the Taxation Admonition Act. The ATO can avoid using the wrong way to collect the tax. Under Taxation Administration Act s269-20 claim that the penalty for director on or before due. And there also has the subsection (1)(a) and (1)(b), the s269-20(1)(a) is the director has to pay the obligation to the Commissioner at the end of the due day under section 269- 15. Also s269-20(1)(b) the directors of the company are still under an obligation, even the director is stop to appoint be a director before the end of the due day. And the s269-20(2) is the following section to s269-20(1), it claim that, the penalty is due and payable at the end of the due day. If there have a new director under s269-20(3) the director still has to pay the obligation. S269-20(3)(a) after the due day, you became a director of the company and began to be under an obligation under section 269- 15 and (b) 30 days later, you are still under that obligation. The following section s269-20(4) is the penalty is due and payable at the end of that 30th day. For small business The PAYG instalments which having the flexible time for taxpayer or small business to pay the tax monthly, quarterly, annually, under Administration Act 1953 s45-70. Therefore, the taxpayer or small business can pay the PAYG instalments for a separated amount that they can afford and will not bring the huge financial problem about the operating of business, therefore the taxpayers who pay the tax on time and in correct amount the ATO will not do any legal action to the them. -Defence sections for the small business and taxpayer When the director of the company or the taxpayer violate of the ATO’s provisions, the taxation office will issues the Director Penalty Notices to sue the director. Therefore the director has the right defence to ATO that can decrease of the disputes between the taxpayer and ATO. According to Administration Act 1953 s269-35 which is defences sections for the small business or taxpayer to defence when they are having legitimate reason to late or do not paying the tax to ATO. Under section 269-35(1), the director will not have liable to a penalty. If the director of the company, who has the obligations under subsection 269- 15(1), he can avoid to sue by ATO, because of illness or for some other good reason. Also according to the reasonable steps under the Administration Act 1953 s269-35(2), the director not liable to penalty, in this section, in this section it have two subsection s269-35(2)(a) and s269-35(2)(b), they are describe the factor when the director have reasonable step and do not have reasonable step respectively. Under s269-35(2)(a) the factor of the director who having the reasonable step, i) the directors caused the company to comply with its obligation, ii) the directors caused an administrator of the company to be appointed under Corporations Act 2001 iii) the directors caused the company to begin to be wound up. The s269-35(2)(b) claim that, there were no reasonable steps you could have taken to ensure that any of those things happened. In conclusion, the Director Penalty Notices can help the Australian Taxation office to charge the taxpayer

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