The goal of your tax accountant should be to minimise your tax bill as much as possible within the rules (this article explains what happens if you don’t want to stick to the rules), but what happens if you simply decide not to pay tax?
First, the good news – you won’t end up in jail! While tax evasion can land you a prison sentence, that is due more to the filing of fraudulent information than as a result of any failure to pay. Now, the bad news – you will end up paying, and you’ll pay interest too. Even if you don’t pay, you really will, and here’s how.
First of all, if you have any refunds due, the Australian Taxation Office (ATO) will use those to pay your debt. This commonly occurs when you file several years of late returns together. The years with refunds would be offset against the debts to achieve a final balance amount. This would also apply to future years’ refunds as they occurred.
If you don’t have any refunds to cover the debt and refuse to pay, the ATO can send your account to an external collection agency. They will pursue the debt on behalf of the ATO, but if they are unsuccessful, they will refer the debt back to the ATO for further action.
If you are thinking ‘what can the ATO do if a collection agency can’t get the money?’ Well, the ATO has some fairly significant recovery options that aren’t available to the average debt collector. The first of these is a garnishee notice. Rather than pursuing you further, the garnishee notice requires individuals and organisations that are either holding money for you (such as banks) or will owe you money in the future (such as your employer) to pay that money to the ATO to cover the cost of the debt.
The ATO can also apply penalties to company directors in the event that the money is owed by a corporation rather than a sole trader or partnership (where the business owners are more directly liable for the business debts).
If the debt still remains unpaid, then the ATO can file a claim in the courts to have your business served with a bankruptcy notice or have your business wound up, which involves a liquidator selling off your business’ assets to pay the debt.
As you can see, the ATO won’t simply put your refusal in the ‘too hard’ basket, as that would set a disturbing precedent that no government would want to see. So if you do decide to simply stop paying your taxes, you can rest assured that the ATO will come looking for the money.
By Jennifer Lowe