The ATO will now only consider deferring PAYG withholding for large businesses where there is a genuine risk of insolvency, but directors have been warned of the significant risks in applying for the relief.
The Tax Office has now clarified its position on its discretion to defer the PAYG withholding, GST and excise obligations of large withholders, following reports that businesses were being allowed to use PAYG withheld to stay afloat amid the ongoing coronavirus crisis.
“The ATO has taken a position not to exercise the discretion to defer the PAYGW, GST and excise obligations of large withholders, except in circumstances where an insolvency event is imminent, and the large withholder can demonstrate that they don’t have access to other sources of funding (e.g. loan facilities, equity contributions from new or existing shareholders, realisation of liquid assets), and the granting of a deferral would result in the large withholder remaining a going concern,” the ATO said.
Gilbert + Tobin partner Muhunthan Kanagaratnam told Accountants Daily that the change in position comes after the ATO had recently granted some businesses a deferral of up to six months, in a bid to free up the withheld amounts for other purposes.
“What seems to have happened is that prior to the release of the JobKeeper wage subsidy, the ATO had been mindful of the impact on taxpayers and had granted some large withholders the ability to defer PAYG withholding, and also GST and excise,” Mr Kanagaratnam said.
“But once the government had come out with its wage subsidy measure, they seem to have taken the position that that is going to be enough and that they don’t need to provide the deferral except in a real solvency circumstance.”
While the law allows for the ATO to exercise discretion on PAYG withholding liabilities, Mr Kanagaratnam said he was unaware of the discretion being exercised on a wide scale.
The ATO said it would now hold a strict line on granting deferrals, with each case to be considered by a panel of senior executive officers.
Directors at risk
The ATO has also noted that a business’s ability to pay the tax at the deferred payment date would also factor in significantly in its approval process, with directors cautioned on their obligations under the Director Penalty Notice (DPN) regime.
“Even with the deferrals that have been granted, the Tax Office has been very mindful of the fact that if the taxpayer ultimately can’t meet its tax liabilities, it still has the normal recourse to put the company into liquidation, take action against the directors, and these are pretty serious consequences,” Mr Kanagaratnam said.
While the ATO’s concession generally applies to large withholders — or those that withheld more than $1 million in tax in the last financial year — Mr Kanagaratnam believes advisers should not be afraid to approach the ATO should the situation call for it.
“My recommendation, certainly to our clients has been, and this is what I would say to advisers as well, is that if you don’t have any other alternative, then you should definitely speak to the ATO,” he said.
“It is across the board, if your clients are having trouble, speak to the ATO, you might be able to get something out of it that they have not set out in their public information — a concession on a taxpayer-by-taxpayer basis.
“Now, they might still say no, but you need to have that conversation and not assume automatically that they will not give the deferral.
“I think the ATO would prefer in the long run that companies remain in business and get through this period.