Small businesses urged to act quickly
As the Australian Taxation Office (ATO) ramps up efforts to collect outstanding debts following a period of leniency during the COVID-19 pandemic, small- to medium-sized enterprises (SMEs) are feeling the strain of unresolved tax obligations. Non-bank lender Banjo Loans has outlined three essential steps SMEs can take to effectively manage their ATO debts.
Banjo Loans chief risk officer Andrew Ward (pictured) noted a significant rise in businesses seeking financial assistance from the lender in recent months to manage tax debts, but one of the key strategies he recommends is for businesses to engage directly with the ATO.
"Businesses need to demonstrate integrity and strong management skills by proactively engaging with the ATO. Ignoring the situation is not a viable strategy. Whether it’s the SME director or their accountant, actively communicating with the ATO to negotiate a solution is always better in the long run,” Ward said.
Ward also stressed the importance of realistic financial planning when setting up repayment plans. He warned against committing to repayment schedules that are unsustainable, as this could worsen the company’s financial situation.
“It’s crucial that businesses don’t commit to repayment plans they can’t realistically meet,” Ward said. He advised that companies carefully assess their cash flow and consult with accountants or brokers to create achievable plans. Overly ambitious plans have backfired for some businesses, putting them in a more precarious position.
In addition to engaging with the ATO, Ward highlighted the value of maintaining open communication with lenders. SMEs that anticipate difficulties in meeting their financial obligations should reach out to lenders like Banjo Loans early on to explore possible solutions.
“If a business foresees any difficulties in meeting its obligations, it’s vital to communicate with us early. We’re here to support businesses, but we can only do that effectively when there’s open communication,” Ward said.
Current estimates suggest that Australian SMEs collectively owe between $30 billion and $40 billion in tax debt. The ATO has several tools at its disposal to recover these funds, including Director Penalty Notices, which hold company directors personally liable, garnishee orders targeting third parties such as banks or clients, and legal action that can lead to asset liquidation.
Additionally, the ATO may report unpaid debts to credit reporting agencies, potentially damaging a company’s credit rating.
Ward noted that SMEs who engage proactively with the ATO are more likely to avoid the harshest measures. For example, businesses with tax debts of up to $200,000 may be able to negotiate repayment plans online if they act quickly.
"Proactively entering a payment plan with the ATO can be good practice," he said, adding that filing tax returns on time is also crucial, even if payments are still outstanding. “The ATO is far less accommodating when returns are not lodged.”
