You should act immediately if you have received an ATO Statement of Claim because ignoring a tax debt can have serious legal and financial consequences for you and/or your company. A Statement of Claim issued by the ATO is a formal notice demanding payment of an unpaid tax debt within a specific period, typically 21 days from the date of issue. Ignoring this demand can lead to enforced collection measures, including insolvency proceedings.

Understanding the implications of non-compliance is crucial for managing tax obligations responsibly.

Insolvency Proceedings

One of the most significant consequences of not addressing a statement of claim demand is the risk of being declared insolvent. For businesses, this could lead to liquidation proceedings, where the company is wound up, and its assets are sold to pay off debts, including tax liabilities. For individuals, non-compliance can result in bankruptcy proceedings, severely impacting their financial standing and credit rating.

Enforcement Actions

The Australian Taxation Office (ATO) has the authority to take enforcement actions to recover unpaid taxes. These actions can include garnishing wages, seizing assets, or placing a lien on the property.

Such measures not only affect the debtor’s current financial situation but can also have long-lasting effects on their ability to secure financing in the future.

Accumulation of Interest and Penalties

Ignoring a statutory demand allows interest and penalties on the outstanding tax debt to continue accruing. This can significantly increase the total amount owed, making it even more challenging to settle the debt in the future.

Impact on Credit Rating

Failure to comply with a statement of claim can adversely affect an individual’s or business’s credit rating. A lower credit score can make it more difficult to obtain loans, mortgages, or other forms of credit, and it may result in higher interest rates on those credits that are available.

Restricted Access to Financing

Businesses that do not address statutory demands may find their access to financing options severely restricted. Lenders view non-compliance with tax obligations as a sign of financial instability, making them less likely to extend credit or investment.

Disruption of Business Operations

For businesses, enforcement actions taken by the ATO to recover unpaid taxes can disrupt operations. Seizure of assets or garnishment of accounts can impact the ability to pay employees, suppliers, and other operational costs, potentially leading to a downward spiral that could end in business failure.

Damage to Reputation

Non-compliance with tax obligations can also damage an individual’s or business’s reputation. This can lead to a loss of confidence among customers, suppliers, and investors, which can be devastating for business operations and long-term viability.

Conclusion

Ignoring a Statement of Claim from the tax office is risky. It can cause serious legal and financial problems. It’s important for everyone to take these notices seriously. If paying the tax is hard, getting professional advice is a good step. Acting quickly can stop the situation from getting worse. This helps avoid serious problems that come with not following tax rules.

Take Action Now

Act now to stop further insolvency action by the ATO.  Waterhouse Lawyers can help negotiate a payment plan and/or remission of GIC.  We have had excellent results on behalf of our clients for these types of matters. Contact us here!