Law Administration Practice Statement PS LA 2011/14
General debt collection powers and principles
Date of issue: 14 April 2011
Date of effect: 14 April 2011
Draft: False
Withdrawn: False

1. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953 (TAA), unless otherwise indicated. | Definitions: 2. The following terms are used in this Practice Statement: • Additional charges – refers to the specific additional amounts for late payment (including general interest charge (GIC) imposed by the various Acts administered by us) whenever an amount is not paid by the time for payment. • Deferring the time for payment – means to vary the time at which a tax-related liability becomes due and payable. In a practical sense, such a deferral extends the time for payment of a debt without attracting additional charges for late payment (provided the debt is paid at or before the deferred time). As a result, the debt is no longer due and payable on the original due date but becomes payable on the date as deferred. It differs from the situation where a debtor is permitted to pay by instalments where additional charges accrue from the original due date. In the latter case, the time at which a tax-related liability becomes due and payable is not varied and interest on any unpaid amount begins to accrue from that time. • Guarantee – means a binding agreement to satisfy the obligation of another person, if the latter fails to do so. • Payment by instalments or payment over time – means to accept payment of a debt that has not been paid by the original due date by regular payments over a period of time. The arrangement does not vary the time at which the amount is due and payable. GIC or other relevant penalty for any unpaid amount of liability will accrue from the due date for payment. • Payment time or time for payment – means the time at which an amount of a tax-related liability is, was or would become due and payable. • Security – could be generally described as a possession such that the holder of the security holds, as against the grantor (the taxpayer), a right to resort to some property or some fund for the satisfaction of some demand, after which the balance of the property or fund belongs to the grantor. • Tax debt – means a primary tax debt or a secondary tax debt (see section 8AAZA of the TAA). • Tax debtor – means, as per section 8AAZA of the TAA – in relation to a tax debt – the person or persons who are liable for the tax debt – in relation to a running balance account (RBA) – the person or persons who are liable for the tax debts that are allocated to the RBA. • Tax-related liability – is a term used to describe a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable) that is administered by the Commissioner (see subsection 255-1(1)). It encompasses all types of taxes, penalties and additional charges for late payment (including amounts previously defined under the Income Tax Assessment Act 1936 as 'tax' and under the Superannuation Guarantee (Administration) Act 1992 as 'superannuation guarantee charge'). However, it does not include a civil penalty arising under Division 290. A table which lists the tax-related liabilities is found in section 250-10. • Additional charges – refers to the specific additional amounts for late payment (including general interest charge (GIC) imposed by the various Acts administered by us) whenever an amount is not paid by the time for payment. • Deferring the time for payment – means to vary the time at which a tax-related liability becomes due and payable. In a practical sense, such a deferral extends the time for payment of a debt without attracting additional charges for late payment (provided the debt is paid at or before the deferred time). As a result, the debt is no longer due and payable on the original due date but becomes payable on the date as deferred. It differs from the situation where a debtor is permitted to pay by instalments where additional charges accrue from the original due date. In the latter case, the time at which a tax-related liability becomes due and payable is not varied and interest on any unpaid amount begins to accrue from that time. • Guarantee – means a binding agreement to satisfy the obligation of another person, if the latter fails to do so. • Payment by instalments or payment over time – means to accept payment of a debt that has not been paid by the original due date by regular payments over a period of time. The arrangement does not vary the time at which the amount is due and payable. GIC or other relevant penalty for any unpaid amount of liability will accrue from the due date for payment. • Payment time or time for payment – means the time at which an amount of a tax-related liability is, was or would become due and payable. • Security – could be generally described as a possession such that the holder of the security holds, as against the grantor (the taxpayer), a right to resort to some property or some fund for the satisfaction of some demand, after which the balance of the property or fund belongs to the grantor. • Tax debt – means a primary tax debt or a secondary tax debt (see section 8AAZA of the TAA). • Tax debtor – means, as per section 8AAZA of the TAA – in relation to a tax debt – the person or persons who are liable for the tax debt – in relation to a running balance account (RBA) – the person or persons who are liable for the tax debts that are allocated to the RBA. • Tax-related liability – is a term used to describe a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable) that is administered by the Commissioner (see subsection 255-1(1)). It encompasses all types of taxes, penalties and additional charges for late payment (including amounts previously defined under the Income Tax Assessment Act 1936 as 'tax' and under the Superannuation Guarantee (Administration) Act 1992 as 'superannuation guarantee charge'). However, it does not include a civil penalty arising under Division 290. A table which lists the tax-related liabilities is found in section 250-10. – in relation to a tax debt – the person or persons who are liable for the tax debt – in relation to a running balance account (RBA) – the person or persons who are liable for the tax debts that are allocated to the RBA. | General principles on the payment of taxation debts: 3. The payment of taxes is an important community responsibility. We expect debtors to pay their taxation debts as and when they fall due for payment. If a debt is not paid when it falls due for payment, we are responsible for collecting it or recovering it in a timely manner. 4. We use risk management to ensure that our strategies are effective and appropriate for collecting outstanding debts. To ensure that our approach is professional: • We advise tax debtors of their rights and we respect those rights. • We proceed with appropriate collection action without further notice where a tax debtor fails to respond to our approaches or fails to enter into genuine negotiations. • We adopt the full range of appropriate collection options covered in Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts. • We advise tax debtors of their rights and we respect those rights. • We proceed with appropriate collection action without further notice where a tax debtor fails to respond to our approaches or fails to enter into genuine negotiations. • We adopt the full range of appropriate collection options covered in Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts. 5. We expect tax debtors to pay their debts as and when they fall due for payment because we: • are not a lending institution or a credit provider • expect tax debtors to organise their affairs to ensure payment of tax debts on time • expect tax debtors to give their tax debts equal priority with other debts. • are not a lending institution or a credit provider • expect tax debtors to organise their affairs to ensure payment of tax debts on time • expect tax debtors to give their tax debts equal priority with other debts. 6. Once a tax debt becomes due and payable, the law deems the debt to be due to the Commonwealth and payable to the Commissioner (see subsection 255-5(1)). If a tax debtor does not pay by the due date and does not contact us, we assume they are not going to pay and take whatever action is necessary to recover the debt. 7. When deciding appropriate action to deal with outstanding debts, we consider the compliance history of a taxpayer, including both payment and lodgment records. If we decide to take recovery action, options can include action through the courts or the use of our statutory garnishee power. For details of our garnishee policy, refer to PS LA 2011/18. 8. In applying this policy, we will assess a tax debtor's capacity to pay their tax debts. We will consider a number of factors, including: • gross income and expenditure, including – consideration of past, current and future transactions – taxable income – exempt income – wealth through inheritances – gifts and windfalls – exclusion of book entries (depreciation, investment allowances, journal entries) – the nature of business deductions – the curtailing of excessive personal expenditure, and – income alienation • access to liquid assets or assets easily convertible to cash (shares, debentures, bonds, personal assets such as jewellery, art) • ability to convert fixed assets to cash (sale of home, land, motor vehicle, boats, plant and equipment) • ability to obtain loans and funds from financial institutions, family and friends or related entities. • gross income and expenditure, including – consideration of past, current and future transactions – taxable income – exempt income – wealth through inheritances – gifts and windfalls – exclusion of book entries (depreciation, investment allowances, journal entries) – the nature of business deductions – the curtailing of excessive personal expenditure, and – income alienation • access to liquid assets or assets easily convertible to cash (shares, debentures, bonds, personal assets such as jewellery, art) • ability to convert fixed assets to cash (sale of home, land, motor vehicle, boats, plant and equipment) • ability to obtain loans and funds from financial institutions, family and friends or related entities. – consideration of past, current and future transactions – taxable income – exempt income – wealth through inheritances – gifts and windfalls – exclusion of book entries (depreciation, investment allowances, journal entries) – the nature of business deductions – the curtailing of excessive personal expenditure, and – income alienation 9. We will also consider the factors or circumstances which led to the inability to pay (for example, the disposition of funds to a family member at a time when tax-related liabilities arose). 10. If debtors cannot pay a tax debt in full by the due date (or anticipate they will not be able to), they should contact us as early as possible to discuss payment at a later date or by instalments. Note also: • Company directors may be personally liable to a penalty equal to particular debts of their company that are not paid by the due date. • We will not give approval to pay at a later time as a matter of course (see paragraphs 49 to 54 of this Practice Statement). The fact that we are negotiating payment of a debt does not prevent us from prosecuting breaches of tax laws. Further, where we have a concern about the risk to the revenue it does not prevent us from seeking to secure the debt by whatever means are available (for example, judgment, security over property, injunctions or issuing of garnishee notices). Liability to pay outstanding tax is not deferred because of any action to dispute that amount – for details, refer to Law Administration Practice Statement PS LA 2011/4 Collection and recovery of disputed debts. • Company directors may be personally liable to a penalty equal to particular debts of their company that are not paid by the due date. • We will not give approval to pay at a later time as a matter of course (see paragraphs 49 to 54 of this Practice Statement). The fact that we are negotiating payment of a debt does not prevent us from prosecuting breaches of tax laws. Further, where we have a concern about the risk to the revenue it does not prevent us from seeking to secure the debt by whatever means are available (for example, judgment, security over property, injunctions or issuing of garnishee notices). Liability to pay outstanding tax is not deferred because of any action to dispute that amount – for details, refer to Law Administration Practice Statement PS LA 2011/4 Collection and recovery of disputed debts. 11. We have the power to defer the time at which an amount of a tax-related liability is, or would become, due and payable. The circumstances of each particular case must be taken into account (see paragraphs 16 to 48 of this Practice Statement). 12. Where tax debtors face genuine difficulty in meeting payment dates but have capacity to pay, we may allow them to pay their tax debts (and any additional charges for late payment, including the GIC) by instalments over a reasonable period of time (see paragraphs 49 to 72 of this Practice Statement). 13. If payment of an income tax or fringe benefits tax debt will cause serious hardship, an individual tax debtor can apply for a release from that debt – refer to Law Administration Practice Statement PS LA 2011/17 Debt relief, waiver and non-pursuit. 14. Where a long-term payment arrangement is offered, the risk to revenue will be assessed. We may accept a security to protect the revenue (for example, a registered first mortgage over property). In such circumstances, the debtor would be expected to cover the legal costs of the mortgage (refer paragraphs 73 to 126 of this Practice Statement). 15. You must follow the principles and guidelines outlined in this Practice Statement when exercising the Commissioner's powers under sections 255-10, 255-15 or 255-20. It is noted, however, that it is not possible to set out all the circumstances in which the powers may or may not be exercised. Each case has to be considered on its merits and on the basis of all the relevant facts. You must ensure that the pre-conditions prescribed for the exercise of the power are met. You must take care not to consider irrelevant factors and must exercise your own judgment in arriving at an appropriate decision. The decision must be made in good faith and without bias. | Payment due dates and deferrals: 16. Where we make an assessment, we send the taxpayer a notice of assessment stating the amount payable and when payment is due. Where the taxpayer self-assesses the tax or charge, the payment is usually due when the lodgment is due. 17. When we notify a tax debtor of an administrative overpayment (under subsection 8AAZN(2) of the TAA), specifying a payment date at least 30 days after we give the notice, the tax debtor is liable to pay the GIC on the unpaid amount from the notified payment date. However, administrative overpayments which do not fall within the ambit of section 8AAZN of the TAA and can only be recovered under a common law remedy will not attract GIC. (Refer to Law Administration Practice Statement PS LA 2011/5 Recovery of administrative overpayments.) 18. Where lodgments or tax debts (other than GIC) fall due on a weekend or a public holiday, the law extends the due date to the next business day (section 8AAZMB of the TAA and section 388-52). 19. For the purposes of these provisions, a public holiday includes any day that is a public holiday throughout a state or territory. In these circumstances, all taxpayers receive the benefit of the extension, even if they are not located in the relevant state or territory. | Demanded due dates: 20. We can bring forward the payment time in certain cases if we reasonably believe that the tax debtor may leave Australia before a tax-related liability is due and payable (section 255-20). 21. For section 255-20 to apply, the debtor must have a tax-related debt 'due and payable' in the future. That debt can be one from a notice of assessment we have already sent or it can be one where we have quantified an amount and propose to send a notice of assessment with a new due date. 22. Section 255-20 also applies to any tax-related liability that becomes payable without an assessment or other notice issuing to the tax debtor. For example, a pay as you go withholding amount payable under Subdivision 16-B. 23. In all cases where we invoke section 255-20, subsection 255-20(2) requires us to notify the tax debtor in writing that we are bringing the payment date forward. 24. Under section 255-20, payment may be brought forward in cases involving visiting sports people, entertainers and other business professionals as we may consider the risk to revenue too great to attempt collection from people living in other tax jurisdictions. 25. We base decisions on bringing payment forward on the level of risk each case presents. In exercising this power, we consider the principles detailed in PS LA 2011/18. 26. In some cases, we exercise this power in conjunction with our power to prevent a debtor from leaving Australia without discharging, or making arrangements to discharge, a tax debt (see PS LA 2011/18). | Payment deferrals: 27. Section 255-10 enables us to defer the time for payment of a tax-related liability having regard to the circumstances of a particular case. The mere existence of that power does not confer upon a debtor any right or entitlement to its exercise. 28. A deferral of the payment time under section 255-10 varies the time at which the amount is due and payable. Any GIC or other relevant penalty applicable to any unpaid amount of the tax-related liability begins to accrue from the deferred payment time. 29. Deferring the time for payment of a tax-related liability, without the imposition of additional charges for late payment, facilitates collection from debtors who can demonstrate that they are unable to pay by the due date but have the capacity to pay in full at a particular time in the future. It also provides us with an alternative to legal action to recover debts not paid by the original due date. | Factors we take into account: 30. Without limiting our discretion in relation to any particular case, the time for payment will generally not be deferred unless the debtor can demonstrate that: • payment cannot be (or has not been) made by the original due date because of circumstances beyond their control and the debtor has taken reasonable steps to mitigate the effects of those circumstances • payment in full can be made at a later time, once the circumstances that led to non-payment have been alleviated, and • once the circumstances are under control, continuing tax-related liabilities will be paid as and when they fall due (and accordingly, the debt will not escalate after that time). • payment cannot be (or has not been) made by the original due date because of circumstances beyond their control and the debtor has taken reasonable steps to mitigate the effects of those circumstances • payment in full can be made at a later time, once the circumstances that led to non-payment have been alleviated, and • once the circumstances are under control, continuing tax-related liabilities will be paid as and when they fall due (and accordingly, the debt will not escalate after that time). 31. It is not possible to anticipate every circumstance which may prevent payment by the payment time and which is also beyond the control of a debtor or the debtor's representative (such as the trustee of the debtor's deceased estate). It can generally be expected, however, that a deferral will be granted where the debtor can show the inability to pay on time can be directly linked to: • natural disasters (for example, flood, fire, drought, earthquake) • other disasters that may have, or have had, a significant impact on a debtor or region • the serious illness of the debtor where there is no other person that can make (or could have made) the payment • experiences of vulnerability (for example, family violence, financial coercion, homelessness, serious mental health challenges or other relevant circumstances) • a legal impediment (such as probate not being granted or access to funds being denied by the order of a court) • the embezzlement of the debtor's payment by the tax agent, solicitor or other third party. • natural disasters (for example, flood, fire, drought, earthquake) • other disasters that may have, or have had, a significant impact on a debtor or region • the serious illness of the debtor where there is no other person that can make (or could have made) the payment • experiences of vulnerability (for example, family violence, financial coercion, homelessness, serious mental health challenges or other relevant circumstances) • a legal impediment (such as probate not being granted or access to funds being denied by the order of a court) • the embezzlement of the debtor's payment by the tax agent, solicitor or other third party. 32. Such circumstances do not commonly occur and there would be few others that would give rise to a debtor qualifying for a deferral. 33. We may grant a collective deferral of time for payment to a class of debtors in a particular industry or region. For example, we may exercise this power where a particular region has been impacted by natural disaster and we therefore grant deferral of payment time of tax-related liabilities to all taxpayers in the affected area. Our decision to defer payment in these circumstances will be published on our website. A taxpayer is not required to individually apply for a deferral where we have granted a blanket deferral (see subsection 255-10(2A)). 34. We will consider each individual request for a deferral on its merits. When we grant a deferral request, we will determine the deferred payment time by taking account of the particular circumstances of the debtor and the circumstances that led to the debtor not paying on time. The fact that the debtor may have other outstanding debts or a poor compliance record should not prevent that debtor from applying for and being granted a deferral of the time for payment of a particular tax-related liability. 35. In the case where a debtor has entrusted money intended for payment of a tax liability to a tax agent, solicitor or a third party and such money has been misappropriated, we may defer the time for payment of the particular tax-related liability or permit payment to be made by instalments under an arrangement, as circumstances warrant. However, the misappropriation does not alter the fact that the tax liability of that debtor remains undischarged and we would not be precluded from taking appropriate action to collect the liability concerned. The exception to this rule is where the payment was made by a cheque drawn in favour of the Commissioner and that cheque has been used for the payment of another debtor's tax-related liability. In such a situation, where the misappropriation has been established, we will usually be obliged to credit the drawer's account to the value of the cheque drawn. 36. We will not agree to defer the payment time of any tax-related liability on a permanent basis. However, where a debtor's payment has been misappropriated by another entity, we will generally extend the deferred payment time until any litigation that has been initiated to recover the misappropriated funds has been finalised. 37. In appropriate cases, we will consider being joined as a party to a matter such that his interest can be protected by seeking an order that the monies paid by the debtor are paid to us, in satisfaction or part satisfaction of the debtor's tax-related liability. 38. If we agree to defer the time for payment, we will not commence legal proceedings until after the deferred payment time. 39. Action to recover the debt and the additional charges for late payment (calculated from the deferred payment time) may be commenced if a debtor does not pay a tax-related liability by the deferred payment time and does not come to some alternative arrangement for payment of that debt. An alternative arrangement may include a further deferral or may involve us accepting payment of the debt by instalments, subject to the imposition of additional charges for late payment from the deferred payment time. 40. Once legal action for collection of the debt has commenced, the time for payment will not be deferred unless the parties to the proceedings enter into terms of settlement to enforce settlement which may include payment of the debt by instalments over an agreed period of time. (Refer to Law Administration Practice Statement PS LA 2011/7 Settlement of debt litigation proceedings). | Lodgment deferrals and payment consequences: 41. A decision that we make to defer a lodgment due date is separate to a decision to defer a payment due date. Where entities require both lodgment and payment deferrals, they will need to lodge separate requests. This applies to lodgment and payment deferrals beyond the statutory due dates or deferred due dates already allowed – for example, under the ATO lodgment program. 42. There will be cases where it is inappropriate to defer the due date for lodgment but it may be appropriate to defer the due date for payment. An inability to pay by the due date is not a valid reason for failing to lodge on time. 43. Alternatively, there will be circumstances, such as the situation where payment can be made but lodgment information is not yet available, where it is appropriate to defer the due date for lodgment but not payment. 44. Where the lodgment and payment due dates are deferred and provided lodgment and payment in full are made by the deferred due dates, no failure to lodge penalties will apply and no GIC will apply for failing to pay on time. | Transfer pricing cases: 45. 45. In cases where we make a transfer pricing or profit reallocation adjustment, the debtor may seek competent authority assistance under the mutual agreement procedure (MAP) article contained in Australia's double-tax agreements in an attempt to have the matter resolved with the other tax jurisdiction involved. For further information, refer to Mutual agreement procedure . 46. It is recognised that the collection of tax during the MAP will, in most instances, impose double taxation on the taxpayer because the same profits have been subject to tax in both jurisdictions. We will decline any request to defer the payment time until the MAP process is complete. Our power to defer recovery action under section 255-5 provides an alternate and more appropriate remedy for such circumstances. 47. We will agree to defer recovery action under section 255-5 until an agreed future date, which is usually the date that the MAP process is concluded, unless: • there is a risk to revenue • the taxpayer has other liabilities unpaid after the due date, or • the taxpayer has failed to meet other tax obligations when required. • there is a risk to revenue • the taxpayer has other liabilities unpaid after the due date, or • the taxpayer has failed to meet other tax obligations when required. | Advice to taxpayer: 48. In all cases where we decide to defer the payment time of any tax-related liability we must do so by giving written notice (see subsection 255-10(2)). The debtor will be advised in writing: • of the debts to which the deferral applies • of the deferred payment time by which payment is to be made and from which additional charges for late payment will be calculated • that the decision to defer the payment time is to specifically alleviate the difficulties caused by particular circumstances and is not a permanent deferral • that future liabilities are to be paid as and when they fall due (such that the debt does not escalate) • that additional charges continue to apply in relation to any other outstanding debt which is not the subject of the application to defer the time for payment, and • that action to recover will be commenced without further notice if payment is not made by the deferred payment time or future liabilities are not paid as and when they fall due and if alternative arrangements for payment have not been made. • of the debts to which the deferral applies • of the deferred payment time by which payment is to be made and from which additional charges for late payment will be calculated • that the decision to defer the payment time is to specifically alleviate the difficulties caused by particular circumstances and is not a permanent deferral • that future liabilities are to be paid as and when they fall due (such that the debt does not escalate) • that additional charges continue to apply in relation to any other outstanding debt which is not the subject of the application to defer the time for payment, and • that action to recover will be commenced without further notice if payment is not made by the deferred payment time or future liabilities are not paid as and when they fall due and if alternative arrangements for payment have not been made. | Payment arrangements: 49. Taxpayers have a responsibility to manage their cash flow to ensure they meet all their tax debts when those debts fall due for payment. Some taxpayers may experience cash flow difficulties that will prevent them from paying their debt on time. In those instances, we will consider requests to accept payment of the debt by instalments over a period of time. Accepting payment by instalments provides us with an alternative to more formal recovery procedures. 50. Section 255-15 gives us the power to permit taxpayers to pay an amount of a tax-related liability by instalments (payment arrangements) under an arrangement whether or not the liability has already arisen. 51. An arrangement under section 255-15 does not vary the time at which the amount is due and payable. Any GIC, if applicable, in respect of any unpaid amount of the tax-related liability, begins to accrue when the liability is due and payable under the relevant taxation law, or at the time as varied under sections 255-10 or 255-20. 52. We will not agree to accept payment arrangements as a matter of course. Any decision that we make to accept a payment arrangement will be made in accordance with the risk management guidelines set out in Law Administration Practice Statement PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities. Risk is clearly linked with the indicators of unwillingness to comply with taxation obligations in the Compliance model . We are unlikely to grant payment arrangements to those who continually fail to pay or meet their lodgment obligations on time. 53. We will consider the individual circumstances of the taxpayer in each case, including any steps that the taxpayer has taken or proposes to take to mitigate the risk. We will also consider the taxpayer's past behaviour and reasons for any previous non-compliance. The relevant factors for us to consider are outlined at paragraph 58 of this Practice Statement. 54. We may decide to accept a payment arrangement having due regard to the information provided by debtors. We will also consider any advice from financial advisers who taxpayers have engaged to assist in sorting out their financial affairs, but this does not relieve them from the responsibility for providing other relevant information to us. Taxpayers cannot impose conditions on us and if they do not provide sufficient information to support their application to pay by instalments, we will generally not agree to the request. | Application process: 55. The taxpayer has the sole responsibility for demonstrating that they cannot make payment by the due date. A taxpayer who cannot pay on time should apply for a payment arrangement before that due date has passed. If an application cannot be made by the due date, the taxpayer should apply as soon as possible after the due date. 56. Taxpayers applying to pay their debts by a payment arrangement must provide all necessary information within agreed timeframes to enable us to properly consider the request. If taxpayers do not provide the required information within the agreed timeframe, we will advise them that we may initiate or continue action to recover their debts without further notice. 57. An application to pay by a payment arrangement should be accompanied by an initial payment to the extent of the taxpayer's present capacity and the application should: • explain the reasons for non-payment by the due date • satisfy us as to the taxpayer's inability to pay the full amount by the due date, not simply provide reasons why they have decided to not pay by the due date • contain a detailed statement of the taxpayer's current financial position (including details of what steps have been taken to obtain funds to pay the debt and what arrangements are in place to pay other creditors) • satisfy us that, generally, the taxpayer is treating their tax debts with the same priority they are giving to their other payment obligations (for example, they would need to show that payment of private debts, like credit card debts and mortgage obligations, have not assumed a priority over payment of their tax debts and that any short-term priority afforded to their business debts was appropriate and that the business was viable) • include a detailed proposal for payment of their debt in full in the shortest possible timeframe • incorporate additional charges for late payment and reimbursement for any costs incurred pursuant to any recovery action that we had commenced in respect of the debt, and • contain sufficient information to satisfy us that payment can be made by a payment arrangement without the total debt escalating (taxpayers will need to specify the steps they have taken to ensure that future debts will be met as and when they fall due). • explain the reasons for non-payment by the due date • satisfy us as to the taxpayer's inability to pay the full amount by the due date, not simply provide reasons why they have decided to not pay by the due date • contain a detailed statement of the taxpayer's current financial position (including details of what steps have been taken to obtain funds to pay the debt and what arrangements are in place to pay other creditors) • satisfy us that, generally, the taxpayer is treating their tax debts with the same priority they are giving to their other payment obligations (for example, they would need to show that payment of private debts, like credit card debts and mortgage obligations, have not assumed a priority over payment of their tax debts and that any short-term priority afforded to their business debts was appropriate and that the business was viable) • include a detailed proposal for payment of their debt in full in the shortest possible timeframe • incorporate additional charges for late payment and reimbursement for any costs incurred pursuant to any recovery action that we had commenced in respect of the debt, and • contain sufficient information to satisfy us that payment can be made by a payment arrangement without the total debt escalating (taxpayers will need to specify the steps they have taken to ensure that future debts will be met as and when they fall due). | Factors we take into account: 58. Without limiting our discretion that we have in relation to a particular case, we will take account of the following factors to determine whether to accept a payment arrangement: • the information provided by the taxpayer and other information that may be held (or obtained) by us • the circumstances that led to the inability to pay and whether they were outside the taxpayer's control – examples include where the taxpayer was impacted by a natural disaster (such as fire, flood or drought) or experiences of vulnerability (such as family violence, financial coercion, homelessness, or serious mental health challenges) • the taxpayer's current financial position, including other current payment obligations and actions taken by the taxpayer to rearrange finances or borrow to meet the debt • the stage that any legal recovery action has reached, and any grounds offered by the taxpayer to justify a request that further legal action be deferred • the offer made and the ability to meet payment of the debt (and the additional charges for late payment imposed by legislation) on those terms without seriously impacting on the taxpayer's ability to meet other obligations • whether there is a likely risk to the revenue by accepting payment by instalments and whether that risk could be overcome by seeking some form of security for the debt from the taxpayer (see paragraphs 73 to 126 of this Practice Statement) • the solvency of the taxpayer and arrangements made with other creditors (arm's length or otherwise) to pay debts • compliance with other taxation obligations or commitments (for example, whether all lodgment obligations including activity statements are up to date) and the history of the taxpayer's prior dealings with us • whether there are alternative collection options that may result in payment in a shorter timeframe (for example, the use of garnishee provisions) • the willingness of the taxpayer to enter into direct debit arrangements if that facility exists, and • the willingness of the taxpayer to accept the conditions under which we will agree to a payment arrangement. • the information provided by the taxpayer and other information that may be held (or obtained) by us • the circumstances that led to the inability to pay and whether they were outside the taxpayer's control – examples include where the taxpayer was impacted by a natural disaster (such as fire, flood or drought) or experiences of vulnerability (such as family violence, financial coercion, homelessness, or serious mental health challenges) • the taxpayer's current financial position, including other current payment obligations and actions taken by the taxpayer to rearrange finances or borrow to meet the debt • the stage that any legal recovery action has reached, and any grounds offered by the taxpayer to justify a request that further legal action be deferred • the offer made and the ability to meet payment of the debt (and the additional charges for late payment imposed by legislation) on those terms without seriously impacting on the taxpayer's ability to meet other obligations • whether there is a likely risk to the revenue by accepting payment by instalments and whether that risk could be overcome by seeking some form of security for the debt from the taxpayer (see paragraphs 73 to 126 of this Practice Statement) • the solvency of the taxpayer and arrangements made with other creditors (arm's length or otherwise) to pay debts • compliance with other taxation obligations or commitments (for example, whether all lodgment obligations including activity statements are up to date) and the history of the taxpayer's prior dealings with us • whether there are alternative collection options that may result in payment in a shorter timeframe (for example, the use of garnishee provisions) • the willingness of the taxpayer to enter into direct debit arrangements if that facility exists, and • the willingness of the taxpayer to accept the conditions under which we will agree to a payment arrangement. | Running balance account deficit debt: 59. Where the outstanding debt is an RBA deficit debt, we will usually consider an application to pay by a payment arrangement based on the RBA deficit debt rather than on each of the individual component tax debts that contribute to that balance. The nature of an RBA deficit debt is discussed in Law Administration Practice Statement PS LA 2011/22 Commissioner's discretion to retain a refund. | Risk analysis: 60. We do not accept payment arrangements in circumstances where the prospects of recovery in the longer term would be diminished or the revenue would be disadvantaged. If we have insufficient information to enable us to make a decision, we will advise taxpayers that the offer is unacceptable and that formal action to recover the debt will be instituted or will continue. Where we have concerns about the solvency of taxpayers or their ability to meet the terms proposed, we may require them to provide adequate security or a surety (see paragraphs 73 to 126 of this Practice Statement). 61. Taxpayers that pay their taxation debts by payment arrangements are expected to finalise their debts in the shortest possible timeframe. However, we acknowledge there will be instances where a payment arrangement may extend over more than one financial year depending on factors such as the ability to pay, the size of the debt and the likely costs of alternative collection activity. In these circumstances, the taxpayer may be required to provide security or a surety. We will also review the payment arrangement regularly to take into account potential changes to the taxpayer's financial situation. 62. In some cases, where it is considered appropriate based on an analysis of the associated risk (see PS LA 2011/18), we may accept a payment arrangement without immediately deferring legal action. For example, we may require execution of judgment or that the taxpayer consent to judgment as a precondition of the payment arrangement. | Terms and conditions of payment arrangements: 63. Taxpayers will be advised in writing of the details of the payment arrangement (that is, what is expected from them) if it is decided to accept payment by instalments. They will also be advised of the likely consequences if they fail to pay as required under the payment arrangement (or fail to come to some alternative arrangement for payment that is acceptable to us). Taxpayers are expected to make payments in accordance with their payment proposals while we assess the proposal. 64. Payment arrangements will stipulate that GIC imposed by legislation applies from the original due date of the liabilities and will continue to accrue while the debt remains outstanding. If possible, taxpayers will be provided with an indication of the likely quantum of interest they will be required to pay under the payment arrangement. Taxpayers seeking a remission of GIC will have to demonstrate that remission is warranted (see Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge). 65. If the taxpayer does not meet a term of the payment arrangement, action to recover the whole of the outstanding debt may be initiated (or continued) without further warning. Taxpayers are expected to acknowledge the debt and, if legal proceedings have commenced or are about to commence, must consent to the Commissioner being granted judgment in the event of any default in payment. 66. The terms of the payment arrangement should not inhibit recovery action if there are indications of risk to the revenue, preferential payments or a significant change in the taxpayer's circumstances. Where a significant change in the taxpayer's circumstances occurs, we may (having regard to any representations that have been made by the taxpayer) vary the terms of the payment arrangement or proceed to recover the debt in full (see paragraphs 71 and 72 of this Practice Statement). 67. We may require the condition that we will allocate payments to outstanding tax debts in an order that is in the best interests of the Commonwealth (see Law Administration Practice Statement PS LA 2011/20 Payment and credit allocation). When allocating payment to outstanding tax debt, we will consider a number of factors, including the: • nature of the tax types • differing age of debts • remedies open to us to collect those debts, and • stage reached in legal proceedings for any part of the debt. • nature of the tax types • differing age of debts • remedies open to us to collect those debts, and • stage reached in legal proceedings for any part of the debt. 68. If a taxpayer is not prepared to agree to the terms put forward by us, then we may commence or continue to take formal legal action to recover the debt without further warning. | Discretion not to offset: 69. By law, we must offset all credits, payments or RBA surpluses against any taxation debts. However, we have a discretion not to offset in the limited circumstances specified in subsection 8AAZL(3) of the TAA. This includes situations where the tax debt is the subject of a payment arrangement and the taxpayer is complying with the terms of that arrangement (paragraph 8AAZL(3)(b) of the TAA). If the taxpayer is complying with the terms of a payment arrangement, we will exercise the Commissioner's discretion not to offset where it is fair and reasonable to do so (see Law Administration Practice Statement PS LA 2011/21 Offsetting of refunds and credits against taxation and other debts). 70. We will generally advise taxpayers, when we negotiate payment, that offsets will occur, and we will confirm this in writing. | Termination of payment arrangements: 71. We may terminate any payment arrangement and commence or continue action to recover the whole of the outstanding debt if the: • information provided by the taxpayer and upon which the decision was based, was false or misleading • taxpayer does not pay the instalments as required • taxpayer fails to comply with subsequent lodgment and payment obligations for the duration of the arrangement • taxpayer's circumstances change and we form the view that the payment arrangement should be terminated rather than varied. • information provided by the taxpayer and upon which the decision was based, was false or misleading • taxpayer does not pay the instalments as required • taxpayer fails to comply with subsequent lodgment and payment obligations for the duration of the arrangement • taxpayer's circumstances change and we form the view that the payment arrangement should be terminated rather than varied. 72. We will commence action to recover the debt and the additional charges for late payment (calculated from the original due date) if a taxpayer does not make a payment instalment by the agreed date or contravenes a payment arrangement in any way and does not come to some alternative acceptable arrangement for payment of that debt. | Securities: 73. Security involves a transaction where a creditor is given rights that can be exercised against some property of the taxpayer or a third party in the event the taxpayer does not pay or comply with the conditions as set out in the security deed (see paragraph 84 of this Practice Statement). The advantages of obtaining a security are it: • reinforces our prospects of ultimate recovery of the debt and the risk of non-payment is mitigated • provides an incentive for a taxpayer to ensure that all possible steps are taken to finalise any review and appeal processes, and any other arrangements for the payment of tax • allows taxpayers to retain a disputed amount pending completion of the review process • prevents taxpayers or related entities from divesting themselves of assets while a debt remains outstanding • protects the Commissioner's position during court disputes. • reinforces our prospects of ultimate recovery of the debt and the risk of non-payment is mitigated • provides an incentive for a taxpayer to ensure that all possible steps are taken to finalise any review and appeal processes, and any other arrangements for the payment of tax • allows taxpayers to retain a disputed amount pending completion of the review process • prevents taxpayers or related entities from divesting themselves of assets while a debt remains outstanding • protects the Commissioner's position during court disputes. 74. In some cases, it may be appropriate for us to obtain the best security available in order to make certain its position as creditor or, more importantly, to secure the process of debt collection. We may seek to obtain security in cases where: • a taxpayer requests that we defer the time for payment of a debt (see paragraphs 16 to 48 of this Practice Statement) • a taxpayer is seeking to pay a debt by instalments (see paragraphs 49 to 72 of this Practice Statement) • we have reason to believe the taxpayer intends to carry on business for a limited period only (see the discussion of Subdivision 255-D in paragraph 85 of this Practice Statement) • the taxpayer admits they are temporarily unable to pay the taxation debts • a debt is subject to dispute and an arrangement has been made with us in accordance with PS LA 2011/4 • the taxpayer appears to be dissipating assets • the taxpayer wishes to leave Australia but is not in a position to pay the debt before leaving • the taxpayer is seeking a departure authorisation certificate from us • there is any other indication that the revenue may be at risk. • a taxpayer requests that we defer the time for payment of a debt (see paragraphs 16 to 48 of this Practice Statement) • a taxpayer is seeking to pay a debt by instalments (see paragraphs 49 to 72 of this Practice Statement) • we have reason to believe the taxpayer intends to carry on business for a limited period only (see the discussion of Subdivision 255-D in paragraph 85 of this Practice Statement) • the taxpayer admits they are temporarily unable to pay the taxation debts • a debt is subject to dispute and an arrangement has been made with us in accordance with PS LA 2011/4 • the taxpayer appears to be dissipating assets • the taxpayer wishes to leave Australia but is not in a position to pay the debt before leaving • the taxpayer is seeking a departure authorisation certificate from us • there is any other indication that the revenue may be at risk. 75. Securities may take any number of forms – for example, a mortgage over land or a guarantee by a bank (see paragraphs 82 and 83 of this Practice Statement which identify the securities the Commissioner prefers). 76. We maintain a register of all securities received and issue a receipt for each security. 77. This policy does not apply to licensing securities obtained in relation to the Excise Act 1901. | Security offered voluntarily by the taxpayer: 78. Where a security is offered, the taxpayer should be advised that: • The security is to be located in Australia, be of ascertainable value and be over property in a form acceptable us (see paragraphs 82 and 83 of this Practice Statement). • The security is to be supported by an agreement or deed which should set out the purpose of taking security, as well as when and what triggers default. For example, a breach of a payment arrangement may trigger default. The terms of the deed may include, but are not limited to, the following – All costs in maintaining the security property including rates, taxes and other charges are payable by the person offering the security. – Any property must be insured at the taxpayer's expense, showing the Commonwealth's interest in the property (including the nature of that interest, for example, as a mortgagee) for the full insurable value on a replacement and reinstatement basis. If the property is owned by the Owners' Corporation (for example, a strata title), the property must be insured by the Owners' Corporation. We may also require the taxpayer to obtain mortgagee insurance in respect of the mortgage. – The agreement or deed will provide for the us to realise the security should default occur. – Our costs in taking the security are to be met by the taxpayer at the time approval is given to take the security. This may include solicitors fees, valuation costs, registration and stamping fees. – Our costs in realising the security in the event of default are to be met by the taxpayer. • Additional charges for late payment will continue to accrue, unless the taxpayer's circumstances qualify for remission under normal remission guidelines (see PS LA 2011/12). • The security is to be located in Australia, be of ascertainable value and be over property in a form acceptable us (see paragraphs 82 and 83 of this Practice Statement). • The security is to be supported by an agreement or deed which should set out the purpose of taking security, as well as when and what triggers default. For example, a breach of a payment arrangement may trigger default. The terms of the deed may include, but are not limited to, the following – All costs in maintaining the security property including rates, taxes and other charges are payable by the person offering the security. – Any property must be insured at the taxpayer's expense, showing the Commonwealth's interest in the property (including the nature of that interest, for example, as a mortgagee) for the full insurable value on a replacement and reinstatement basis. If the property is owned by the Owners' Corporation (for example, a strata title), the property must be insured by the Owners' Corporation. We may also require the taxpayer to obtain mortgagee insurance in respect of the mortgage. – The agreement or deed will provide for the us to realise the security should default occur. – Our costs in taking the security are to be met by the taxpayer at the time approval is given to take the security. This may include solicitors fees, valuation costs, registration and stamping fees. – Our costs in realising the security in the event of default are to be met by the taxpayer. • Additional charges for late payment will continue to accrue, unless the taxpayer's circumstances qualify for remission under normal remission guidelines (see PS LA 2011/12). – All costs in maintaining the security property including rates, taxes and other charges are payable by the person offering the security. – Any property must be insured at the taxpayer's expense, showing the Commonwealth's interest in the property (including the nature of that interest, for example, as a mortgagee) for the full insurable value on a replacement and reinstatement basis. If the property is owned by the Owners' Corporation (for example, a strata title), the property must be insured by the Owners' Corporation. We may also require the taxpayer to obtain mortgagee insurance in respect of the mortgage. – The agreement or deed will provide for the us to realise the security should default occur. – Our costs in taking the security are to be met by the taxpayer at the time approval is given to take the security. This may include solicitors fees, valuation costs, registration and stamping fees. – Our costs in realising the security in the event of default are to be met by the taxpayer. 79. A security is normally for a current debt but may be arranged to meet future debts arising – for example, from non-payment of a business activity statement or other liabilities. The amount reflected in the security should be for a specific amount (so there is no uncertainty in law) and include the tax debt plus estimated additional charges for late payment, until the debt is fully paid. 80. In some cases, we will require a taxpayer to provide 'adequate' security as a pre-condition to agreeing to defer the time for payment of a tax debt, agreeing to permit payment of a tax debt by instalments or agreeing to issue a departure authorisation certificate. We will determine what is 'adequate' having regard to the particular circumstances. 81. In deciding whether to take or require security, we may consider the following factors: • the quantum of the debt • the nature of the security being offered, including – the location of the property – the expectation it can be readily and easily realised if default occurs – the taxpayer's equity in the security – the value of the security, and – how the value has been determined (that is, the basis of any valuation) • if third-party security is offered, whether the third party is solvent and if it is fair and reasonable to take the security • the value of security compared to the amount of the tax debt outstanding or the amount expected to be outstanding when any outstanding objection or appeal is finally determined • the period of time the debt has been outstanding • the taxpayer's past compliance history • the taxpayer's ability to pay, based on available information (either supplied by the taxpayer or otherwise available to us) • the level of the taxpayer's other liabilities • arrangements made by the taxpayer's other creditors to secure their debts. • the quantum of the debt • the nature of the security being offered, including – the location of the property – the expectation it can be readily and easily realised if default occurs – the taxpayer's equity in the security – the value of the security, and – how the value has been determined (that is, the basis of any valuation) • if third-party security is offered, whether the third party is solvent and if it is fair and reasonable to take the security • the value of security compared to the amount of the tax debt outstanding or the amount expected to be outstanding when any outstanding objection or appeal is finally determined • the period of time the debt has been outstanding • the taxpayer's past compliance history • the taxpayer's ability to pay, based on available information (either supplied by the taxpayer or otherwise available to us) • the level of the taxpayer's other liabilities • arrangements made by the taxpayer's other creditors to secure their debts. – the location of the property – the expectation it can be readily and easily realised if default occurs – the taxpayer's equity in the security – the value of the security, and – how the value has been determined (that is, the basis of any valuation) | Preferred securities: 82. The preferred securities are: • a registered first mortgage from the taxpayer or a third party over freehold property • a registered second or subsequent mortgage from the taxpayer or a third party over freehold property where there is sufficient equity in the property to secure the tax debt while ceding priority to the first or prior mortgagees • an unconditional bank guarantee from an Australian bank acceptable to us (unconditional means the bank pays us upon demand). • a registered first mortgage from the taxpayer or a third party over freehold property • a registered second or subsequent mortgage from the taxpayer or a third party over freehold property where there is sufficient equity in the property to secure the tax debt while ceding priority to the first or prior mortgagees • an unconditional bank guarantee from an Australian bank acceptable to us (unconditional means the bank pays us upon demand). 83. Securities can be provided by the taxpayer alone, in combination with others or by a third party alone. An agreement by the taxpayer, either to do something or not to do something, is not a security. (This is sometimes called a negative pledge. An example of this would be a pledge not to dissipate assets.) | Default by taxpayer: 84. If a taxpayer defaults on the agreement, we will take appropriate action. This may include: • allowing the agreement to continue but with any costs incurred to vary the existing documentation, including our legal costs, to be borne by the taxpayer • advising the taxpayer to pay the tax covered by the security otherwise action will be taken to enforce the security • enforcing the security. • allowing the agreement to continue but with any costs incurred to vary the existing documentation, including our legal costs, to be borne by the taxpayer • advising the taxpayer to pay the tax covered by the security otherwise action will be taken to enforce the security • enforcing the security. | Commissioner's power to request securities under Subdivision 255-D: 85. The Commissioner can require security from a taxpayer under Subdivision 255-D in situations where the Commissioner: • has reason to believe that the taxpayer is carrying on an enterprise in Australia and intends to carry on that enterprise for a limited time only, or • reasonably believes that the requirement is otherwise appropriate, having regard to all relevant circumstances. • has reason to believe that the taxpayer is carrying on an enterprise in Australia and intends to carry on that enterprise for a limited time only, or • reasonably believes that the requirement is otherwise appropriate, having regard to all relevant circumstances. 86. We may request security at any time that we reasonably believe is appropriate and as often as we reasonably believe is appropriate. The security can be required for either an existing or future tax-related liability. 87. We must consider all relevant matters, act reasonably and comply with the general principles of administrative law in deciding: • whether, and how often, to request security • how much security to require a taxpayer to provide • what kind of security to accept • how much time is given to the taxpayer to comply with the demand for security. • whether, and how often, to request security • how much security to require a taxpayer to provide • what kind of security to accept • how much time is given to the taxpayer to comply with the demand for security. 88. When requesting that a taxpayer provides security for an existing or future tax-related liability under section 255-100, we are required to give a security notice in writing to the taxpayer. 89. Under subsection 255-105(2), the security notice must be served on the taxpayer and must: • state that the taxpayer is required to give the security to the Commissioner • explain why we require the security • set out the amount of the security • describe the means by which the taxpayer is required to give the security under subsection 255-100(2) • specify the time by which the taxpayer is required to give the security • explain how the taxpayer may have our decision to require security reviewed. • state that the taxpayer is required to give the security to the Commissioner • explain why we require the security • set out the amount of the security • describe the means by which the taxpayer is required to give the security under subsection 255-100(2) • specify the time by which the taxpayer is required to give the security • explain how the taxpayer may have our decision to require security reviewed. 90. A taxpayer from whom security is requested has a right to request a review of the decision under the Administrative Decisions (Judicial Review) Act 1977, section 39B of the Judiciary Act 1903 and paragraph 75(v) of the Commonwealth of Australia Constitution Act. 91. Failure by a taxpayer to provide security as required is an offence under section 255-110. | Deciding whether to request security: Temporary enterprise 92. Under paragraph 255-100(1)(a), we may request security from a taxpayer if there is reason to believe that the taxpayer is establishing or carrying on an enterprise in Australia for a limited time only. 93. A security notice may be issued in such cases to secure the payment of tax debts which have been or which may be incurred by the taxpayer in conducting that enterprise. 94. Before we issue a security notice, we must consider all the relevant facts and circumstances of the case so as to determine if there are grounds to support a belief that the taxpayer: • is establishing or carrying on an enterprise, and • intends to carry on the enterprise for a limited time. • is establishing or carrying on an enterprise, and • intends to carry on the enterprise for a limited time. 95. Without limiting the matters that we can consider, the following factors may be relevant in deciding if the taxpayer intends to carry on the enterprise for a limited time: • the nature of the enterprise • any previous enterprises in which the taxpayer or a related entity of the taxpayer has been involved • whether the taxpayer is a non-resident • any evidence which may indicate that the taxpayer intends to leave Australia without returning • the amount of any current tax-related liability or the expected amount of any future tax-related liability • the taxpayer's ability to pay based on available information, and • the taxpayer's assets in Australia. • the nature of the enterprise • any previous enterprises in which the taxpayer or a related entity of the taxpayer has been involved • whether the taxpayer is a non-resident • any evidence which may indicate that the taxpayer intends to leave Australia without returning • the amount of any current tax-related liability or the expected amount of any future tax-related liability • the taxpayer's ability to pay based on available information, and • the taxpayer's assets in Australia. 96. When deciding whether to request security under paragraph 255-100(1)(a), we must consider the relevant facts and circumstances of each taxpayer. We may consider the following factors: • the nature of the enterprise • the expected duration of the enterprise • the nature and amount of any current tax-related liability and the nature and amount of any future tax-related liability expected to be incurred by the taxpayer in carrying on the enterprise • the taxpayer's ability to pay their current tax-related liability or the expected amount of any future tax-related liability, based on available information • the period of time any tax-related liability has been outstanding • the compliance and payment history of the taxpayer, both in respect of the current enterprise, as well as any previous enterprises in which it has been involved • the level of the taxpayer's other liabilities. • the nature of the enterprise • the expected duration of the enterprise • the nature and amount of any current tax-related liability and the nature and amount of any future tax-related liability expected to be incurred by the taxpayer in carrying on the enterprise • the taxpayer's ability to pay their current tax-related liability or the expected amount of any future tax-related liability, based on available information • the period of time any tax-related liability has been outstanding • the compliance and payment history of the taxpayer, both in respect of the current enterprise, as well as any previous enterprises in which it has been involved • the level of the taxpayer's other liabilities. Where otherwise appropriate 97. We are empowered to request security from a taxpayer where there is reason to believe that having regard to all relevant circumstances, the provision of security is otherwise appropriate (see paragraph 255-100(1)(b)). 98. In deciding whether to request security under paragraph 255-100(1)(b) and how often, we will take into account relevant facts and circumstances which may include the: • amount of any current tax-related liability or the expected amount of any future tax-related liability • period of time the debt has been outstanding • taxpayer's ability to pay their current tax-related liability or the expected amount of any future tax-related liability, based on available information • level of the taxpayer's other liabilities • impact of arrangements made by the taxpayer's other creditors to secure their debts, if known. • amount of any current tax-related liability or the expected amount of any future tax-related liability • period of time the debt has been outstanding • taxpayer's ability to pay their current tax-related liability or the expected amount of any future tax-related liability, based on available information • level of the taxpayer's other liabilities • impact of arrangements made by the taxpayer's other creditors to secure their debts, if known. 99. Generally, we should not consider issuing a security notice where no tax-related liability exists. However, we may consider issuing a security notice, where we have reasonable grounds to believe that a future liability will arise against that entity and that there is a risk that the liability will not be satisfied in the absence of the security. 100. In addition, we will consider the following factors, where relevant: • The taxpayer's payment history – we may consider the history of tax debts accrued by the taxpayer or by the businesses or activities in which they were involved, the nature and extent of those debts and the manner in which they arose. For example, security may be requested if it is evident that the taxpayer has a history of consistent non-compliance with paying previous liabilities. It may also be relevant to consider the nature of the business or activity in which the taxpayer is currently engaged. • The payment history of directors of a corporate taxpayer and trustees of trusts – in the case of companies, we may consider the current and previous conduct of those individuals who control the company's activities (such as, the directors of the company or the directors of other companies which have effective control over the relevant entity). For example, where the individuals who control the company have a history of involvement in 'phoenix' arrangements, the conduct and the compliance history of the directors of both the dissolved companies and the newly-established companies, and of the controlling companies of these entities, may be relevant considerations in deciding whether to issue a security notice. • Similarly, where relevant, in deciding to issue a security notice, we will consider the compliance history of trustees (and of directors of corporate trustees) in their – capacity as trustees of the particular trust – capacity as trustees of other trusts, both current and previous, and – non-trustee capacity. • Where we grant the taxpayer the benefit of a payment arrangement – we may require a taxpayer to provide security as a precondition of entering into a payment arrangement for the payment of liabilities by instalments. It is expected that this will not require the issue of a security notice. We may nonetheless issue a security notice in connection with an existing payment arrangement. For example, it may be appropriate to issue a security notice in the following situations – The payment arrangement had been entered into without the provision of security but it is now considered (on reasonable grounds) that the relevant risk of default has increased. This could occur where we have reasonable grounds to believe that asset dissipation by the taxpayer has occurred or is likely to occur. – Security which had been provided with the payment arrangement is considered (on reasonable grounds) to no longer be of sufficient value to meet the outstanding debt. For example, this may be due to a fall in the value of the security originally provided. • Where there is evidence of asset dissipation – we may require a taxpayer to provide security where, on the facts in a particular case, there is evidence that the taxpayer's assets are being dissipated. • The taxpayer's payment history – we may consider the history of tax debts accrued by the taxpayer or by the businesses or activities in which they were involved, the nature and extent of those debts and the manner in which they arose. For example, security may be requested if it is evident that the taxpayer has a history of consistent non-compliance with paying previous liabilities. It may also be relevant to consider the nature of the business or activity in which the taxpayer is currently engaged. • The payment history of directors of a corporate taxpayer and trustees of trusts – in the case of companies, we may consider the current and previous conduct of those individuals who control the company's activities (such as, the directors of the company or the directors of other companies which have effective control over the relevant entity). For example, where the individuals who control the company have a history of involvement in 'phoenix' arrangements, the conduct and the compliance history of the directors of both the dissolved companies and the newly-established companies, and of the controlling companies of these entities, may be relevant considerations in deciding whether to issue a security notice. • Similarly, where relevant, in deciding to issue a security notice, we will consider the compliance history of trustees (and of directors of corporate trustees) in their – capacity as trustees of the particular trust – capacity as trustees of other trusts, both current and previous, and – non-trustee capacity. • Where we grant the taxpayer the benefit of a payment arrangement – we may require a taxpayer to provide security as a precondition of entering into a payment arrangement for the payment of liabilities by instalments. It is expected that this will not require the issue of a security notice. We may nonetheless issue a security notice in connection with an existing payment arrangement. For example, it may be appropriate to issue a security notice in the following situations – The payment arrangement had been entered into without the provision of security but it is now considered (on reasonable grounds) that the relevant risk of default has increased. This could occur where we have reasonable grounds to believe that asset dissipation by the taxpayer has occurred or is likely to occur. – Security which had been provided with the payment arrangement is considered (on reasonable grounds) to no longer be of sufficient value to meet the outstanding debt. For example, this may be due to a fall in the value of the security originally provided. • Where there is evidence of asset dissipation – we may require a taxpayer to provide security where, on the facts in a particular case, there is evidence that the taxpayer's assets are being dissipated. – capacity as trustees of the particular trust – capacity as trustees of other trusts, both current and previous, and – non-trustee capacity. – The payment arrangement had been entered into without the provision of security but it is now considered (on reasonable grounds) that the relevant risk of default has increased. This could occur where we have reasonable grounds to believe that asset dissipation by the taxpayer has occurred or is likely to occur. – Security which had been provided with the payment arrangement is considered (on reasonable grounds) to no longer be of sufficient value to meet the outstanding debt. For example, this may be due to a fall in the value of the security originally provided. Amount of security required 101. In deciding how much security to require from a taxpayer, we will consider all relevant facts and circumstances including the amount of the current tax-related liability or the expected amount of the future tax-related liability. 102. We may require security to the value of the existing or anticipated tax-related liabilities or to the value of a portion of those liabilities. We should consider the taxpayer's ability to provide that security. 103. Where there is both an existing tax-related liability as well as an anticipated tax-related liability, security that equals the amount of both the current and expected liabilities may be required. This may be the case, for example, where there are reasonable grounds to believe that an anticipated tax-related liability is unlikely to be met by the taxpayer at the time in which it becomes due and payable. 104. The extent to which future tax-related liabilities of an entity may be anticipated by us will depend on the relevant circumstances of each case, including (but not limited to) the: • nature of the business or activity in which the taxpayer is engaged • size of the taxpayer's business • number of employees in the business • type of tax debt incurred or expected to be incurred • nature and extent of the debts incurred by the businesses or activities in which the taxpayer was previously engaged and the taxpayer's tax compliance and payment history. • nature of the business or activity in which the taxpayer is engaged • size of the taxpayer's business • number of employees in the business • type of tax debt incurred or expected to be incurred • nature and extent of the debts incurred by the businesses or activities in which the taxpayer was previously engaged and the taxpayer's tax compliance and payment history. 105. We may, for example, have a reasonable basis upon which to expect that the entity will incur an income tax debt in a particular amount for the current income year or a pay as you go withholding debt for several periods in an income year. An estimation of this liability may be based on information relating to the taxpayer's business. 106. When we anticipate the tax-related liabilities likely to be incurred by the taxpayer, we may consider the likely changes in either the general economic environment or circumstances relevant to the conduct and operation of the taxpayer's business. It may not always be possible for us to anticipate amounts of future tax-related liabilities with the necessary degree of precision, particularly over a long period of time. The longer the period of time in respect of which the liabilities are to be anticipated, the greater the chance that unforeseeable events may occur that will materially affect the conduct and operations of the taxpayer's business. 107. We may therefore consider it appropriate to request further security. We may choose to issue a security notice covering tax debts that can reasonably be expected to be incurred over a particular period and issue a subsequent security notice in respect of that period, or a subsequent period, for further liabilities that have become reasonably predictable. 108. We may not consider it practical or desirable to issue multiple security notices in succession covering short periods of immediately foreseeable liability, particularly where there appears to be evidence of a significant risk of asset dissipation. 109. It may be appropriate for us to request security only for a portion of the existing or anticipated liability, notwithstanding that the quantum of the full debt amount may be established or reasonably ascertainable. We will make this decision based on the relevant facts and circumstances. Court orders to comply with a requirement to provide security 110. We can make an application to the Federal Court to seek an order to compel an entity to comply with a requirement to provide a security where we have requested security under section 255-105. 111. Failure to comply with this court order is an offence which carries a maximum penalty of 50 penalty units [1] , imprisonment for 12 months or both (subsection 255-120(1)). What kind of security to accept 112. Paragraphs 82 and 83 of this Practice Statement describe the types of security that are acceptable to us. 113. A security notice issued to a taxpayer may prescribe a specific type or types of security that must be provided by the taxpayer in satisfaction of the request. We will consider the taxpayer's circumstances when determining what security is sought. We will not require a taxpayer to provide a type of security that cannot reasonably be expected to be provided by that taxpayer. 114. In most cases, we will prescribe a range of security types in the security notice issued to the taxpayer, to allow the taxpayer some flexibility in satisfying the request. However, there may be cases in which the security notice requires a particular type of security from a taxpayer. This may be necessary, for example, where there is evidence of asset dissipation. 115. In order to satisfy the security notice requirements, the taxpayer must provide security of the kind and in the amount specified by us. We may reject an offer of security that does not meet these requirements. The taxpayer may be liable for an offence for failure to comply with the security notice if an acceptable security is not provided within the timeframe stipulated in the notice. 116. We should also consider any equity that the debtor or a third party has in the various assets over which the security is being sought. Time allowed for the provision of security 117. A security notice issued to the taxpayer must prescribe the time by which the taxpayer is required to provide the security. 118. We will prescribe a reasonable amount of time for the taxpayer to comply with the security notice. The amount of time considered reasonable for the satisfaction of the security notice will vary from case-to-case and depends on the circumstances pertaining to each matter. 119. We must regard all the relevant circumstances in prescribing the time within which the security notice requirements must be met. This may include the following factors: • the risk of asset dissipation • the amount of security required from the taxpayer • the type of tax liabilities covered by the security • the type of security to be provided by the taxpayer • whether the asset is owned directly or indirectly by the taxpayer. • the risk of asset dissipation • the amount of security required from the taxpayer • the type of tax liabilities covered by the security • the type of security to be provided by the taxpayer • whether the asset is owned directly or indirectly by the taxpayer. 120. Security is 'provided' once all the transactions necessary to give us rights that can be exercised against the taxpayer's property have been completed. 121. In some cases, the security required by us may need to be supported by an executed agreement or deed or various other documents (for example, a registered mortgage). Security will only be considered to have been 'provided' by the due date in the security notice if all such necessary documents have been executed and all necessary processes concluded by the required date. 122. The taxpayer will be liable for penalties for failure to provide the required security by the due date. However, we may extend the time for compliance with the security notice provided that the taxpayer has requested an extension of time from us within the period nominated in the notice. The time should only be extended in those cases where it is considered reasonable to do so after having considered all relevant facts and circumstances. Failure to provide security 123. A taxpayer will commit an offence if they fail to provide security to us as required in the security notice (see section 255-110). 124. The penalty for not complying with a security notice is determined by the courts based on the penalty unit provisions of the Crimes Act 1914 and the TAA. Default by the taxpayer 125. The general legal principles that apply to security arrangements govern our ability to exercise rights over the security. The exercise of the Commissioner's rights depends on the specific situation, taking into account factors such as the nature of the liabilities covered by the security, the reason the security was requested and the precise wording of the agreement or deed under which the security is provided. 126. The security required by the security notice is not a tax or a withholding obligation. The enforcement of the security is not subject to the general collection and recovery rules that apply to tax-related liabilities. For example, a failure to comply with the security notice will not attract GIC on the amount of the security required under the security notice. Where applicable, GIC will be applied to the particular outstanding tax-related liabilities in respect of which a security notice is issued.

Related practice statements: PS LA 2011/4 PS LA 2011/5 PS LA 2011/6 PS LA 2011/7 PS LA 2011/12 PS LA 2011/17 PS LA 2011/18 PS LA 2011/20 PS LA 2011/21 PS LA 2011/22
Legislative references: ITAA 1936 | SGAA 1992 | TAA 1953 8AAZA | TAA 1953 8AAZL(3) | TAA 1953 8AAZL(3)(b) | TAA 1953 8AAZMB | TAA 1953 8AAZN | TAA 1953 8AAZN(2) | TAA 1953 Sch 1 Subdiv 16-B | TAA 1953 Sch 1 250-10 | TAA 1953 Sch 1 255-1(1) | TAA 1953 Sch 1 255-5 | TAA 1953 Sch 1 255-5(1) | TAA 1953 Sch 1 255-10 | TAA 1953 Sch 1 255-10(2) | TAA 1953 Sch 1 255-10(2A) | TAA 1953 Sch 1 255-15 | TAA 1953 Sch 1 255-20 | TAA 1953 Sch 1 255-20(2) | TAA 1953 Sch 1 Subdiv 255-D | TAA 1953 Sch 1 255-100 | TAA 1953 Sch 1 255-100(1)(a) | TAA 1953 Sch 1 255-100(1)(b) | TAA 1953 Sch 1 255-100(2) | TAA 1953 Sch 1 255-105(2) | TAA 1953 Sch 1 255-110 | TAA 1953 Sch 1 255-120(1) | TAA 1953 Sch 1 Div 290 | TAA 1953 Sch 1 388-52 | Administrative Decisions (Judicial Review) Act 1977 | Commonwealth of Australia Constitution Act 75(v) | Crimes Act 1914 | Excise Act 1901 | Judiciary Act 1903 39B
Other references: Compliance Model Mutual agreement procedure

Additional content:
This Practice Statement is being reviewed to ensure alignment of the ATO's approach to remission of interest and penalties charges. This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | Included vulnerability as a factor to be taken into account. | Updated to align with amended Practice Statement style and formatting requirements. | Content checked for technical accuracy and currency. | New paragraphs 107 to 109 | Included to reflect amendments to the law brought in by the Treasury Laws Amendment (2018 Measures No. 4) Act 2019. | Removed reference to the Financial Management and Accountability Regulations 1997. | Corrections to comply with Style guide and to improve readability of document. | Re-arranged information on securities to improve readability. | Qualified that the Commissioner will generally re-credit in these circumstances described if misappropriation has been established. | Change in policy – in those cases where litigation has been initiated to recover misappropriated funds, the Commissioner will generally defer the payment due date until the litigation is finalised and may consider joining the civil proceedings to protect the Commonwealth's interests. | Revised to reflect current policy in PS LA 2011/15. | Removed reference to fixed and floating charge. | Qualified that the Commissioner's costs in taking the security are to be met by the taxpayer at the time approval is given to take the security. | Revised listing of the securities preferred by the Commissioner. | Removed reference to specific penalty amount. | [1] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . | File 1-HJN7E8H; 1-12I72638