With small businesses accounting for $12.5 billion in overdue tax, it’s no surprise the Australian Tax Office (ATO) is reprioritising tax debt in order to balance the budget.
From 1 July 2017, small businesses will risk outstanding debt being disclosed to credit agencies. While the measure will only apply to those businesses with an Australian Business Number and tax debt of more than $10,000 at least 90 days overdue, it will have serious consequences*.
3 Ways to manage ATO debt before it’s too late
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Pay Debts
One of the biggest mistakes a small business owner can make is to keep the tax office in the dark. If there is a possibility you are not able to meet current and forward tax obligations (including GST, PAYG withholding deductions from employees and compulsory superannuation contributions) by the due date, it is best to speak to the ATO. If you are a Director, current legislation makes you personally liable for some debts owed by a company to the tax office.
Important: BAS and PAYG are due on the 28th of February, April, July and October. There are also extensions available when lodging through a tax agent such as 542 Partners, so Check out our calendar for a full list of important dates to consider for your business or download our app to receive regular notifications. The 542 Partners App is free to download from the Google Play or the App Store.
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Refinance
If you are considering using your home or business equity to refinance and cover your tax debt, you must carefully consider the implications of doing this. There can be benefits of refinancing to pay off your debt, but without a thorough and complete review of your options, you could risk landing in financial trouble.
Important: We strongly recommend that you seek professional advice whenever you are seeking to refinance and use personal equity to fund business debts.
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Negotiate a Payment Plan
Under a payment arrangement, you agree to pay the tax debt off over time and the ATO agrees not to take any steps to formally recover the tax debt. The kind of payment plan that the ATO will accept usually depends on where you are in the debt recovery cycle. Getting into a payment arrangement with the ATO is one step, however ensuring you adhere to the payment arrangement is a different story.
Important: It can be as simple as making a suggestion to the ATO that you will pay a certain amount per week or month until your debt is paid off. If this is accepted, the ATO will agree not to take any legal steps against you for the debt, as long as you comply with your arrangement.
*The ATO will notify a business that it intends to refer its tax debt to a credit bureau before it passes on the information. Taxpayer debts will only be reported to a credit reference agency if a taxpayer remains disengaged after the ATO has exhaustively pursued pre-litigation procedures to collect the overdue debt.
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