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Court action ‘now ATO’s first resort for non-compliant sole traders’


Thousands of sole traders unwittingly put their family assets at risk, warns Worrells principal.

By Philip King 10 minute read

Thousands of sole traders risk their family assets by ignoring tax debts and the ATO is now moving quickly to court action, warns Worrells principal Jody Ross.

She said so much of the debt collection activity had focused on companies but sole traders were more exposed than directors, who had some protection from the business structure.

“We all hear about director penalty notices (DPNs) for company directors and the ATO’s power over personal liability for certain tax debts,” she said. “But what about the 31 per cent of small businesses operating as sole traders? The moment they do not pay their debt their personal assets are exposed.”

“As a sole trader when you’re incurring business debts you’re incurring them in your own name. When you incur a debt in a company if you’re not giving a personal guarantee, you’re not giving any exposure to your personal assets.”

She said the DPN regime gave a director the ability to get out of the company debt liability purely by lodging their BAS on time or, if they did receive a DPN, there were options such as voluntary administration or restructuring.

But many sole traders were so focused on business they forgot that jointly owned family property, such as their home, was at risk. Their families might also be unaware of the predicament.

“That’s somewhat lost on them at times – they know they’re trading in a business under their own name but maybe it’s the complexity of doing business and they’re so passionate about that they forget.”  

Almost 785,000 of Australia’s businesses are sole traders, a slight decline from last year according to the fresh ABS data.

Ms Ross said there was a tendency for sole traders to prioritise debt owed to familiar suppliers or the most vocal creditors.

“I think that the ATO can sometimes by left as the last creditor … but it’s a very strong creditor with enormous power. Even when you’re put on notice, it’s very confronting.”

Non-compliant sole traders, with negligent tax records going back three or four years, were targets and the ATO was taking a stronger line, commencing court proceedings as a starting point.

“If you continuously ignore the ATO, they’re not shying away from taking action.”

“The ATO will proceed to pursue the sole trader to get judgment debt, and once they have that it puts them in a position where they can demand payment.”

She said the Worrells Ipswich/Toowoomba office had seen three sole traders receive a bankruptcy notice from the ATO and accountants needed to be aware of clients at risk.

“Your clients may be more vulnerable than you think. Any sole trader clients, with a tax debt, unable to get a satisfactory payment plan or have a poor tax compliance history (including outstanding tax lodgments), are at a high risk of being served with court proceedings.”

Ms Ross said securing an order for judgment debt was a precursor to the ATO serving a bankruptcy notice and once that happened, the sole trader had 21 days to pay or, if they were fortunate, could arrange a payment plan.

“Unfortunately, the accrued debt owed to the ATO was significant, more than the business and personal assets the business owner held, making it too late for any other option to resolve the unpaid debt other than to go ahead with a bankruptcy appointment.”

“For the sake of your client’s credit report alone (let alone their mental and physical health), they don’t want court proceedings noted on their file.”


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Philip King

Philip King


Philip King is editor of Accountants Daily and SMSF Adviser, the leading sources of news, insight, and educational content for professionals in the accounting and SMSF sectors.

Philip joined the titles in March 2022 and brings extensive experience from a variety of roles at The Australian national broadsheet daily, most recently as motoring editor. His background also takes in spells on diverse consumer and trade magazines.

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