Taxation office now less lenient to businesses struggling with tax obligations
With the end of the financial year and tax season approaching, small businesses with a tax debt are encouraged to plan ahead proactively to avoid the risk of paying a high price.
Adrian Fisher (pictured), head of distribution and product at non-bank lender RedZed, noted that while the Australian Taxation Office (ATO) showed leniency to businesses struggling with tax obligations during the COVID-19 pandemic, this stance has changed as Australian businesses now owe over $50 billion.
“During the COVID years, and more recently with increased inflation and costs-of-living pressures, an easy option for many businesses has been to use the ATO as a quasi-lender by not paying their taxes and using that cash flow to keep their businesses running,” Fisher said.
“However, mid last year, the ATO’s attitude significantly changed, and it ramped up its efforts to collect those debts. We have seen a significant increase in inquiries from businesses looking to meet their tax obligations while ensuring their business isn’t negatively impacted.”
Fisher explained that many businesses find ATO payment plans unworkable, with the interest rates often being 3% to 4% higher than traditional loans and applied on a daily compounding basis. The ATO generally requires businesses to clear their debts within six to 12 months, or two years at most, which can severely impact cash flow.
The ATO expects to issue more than 50,000 notices of intent in the 2023-24 financial year and has warned that debts can be disclosed to credit reporting agencies.
“It’s common for self-employed people to have myriad debts, be it for their business, home or SMSF, and borrowing to pay off your tax debt is just another type of loan,” Fisher said. “Running a business can be challenging, and the very worst thing people can do is be embarrassed or shy and put off seeking solutions.
“No business wants an adverse credit score, which can significantly impact its access to finance and even extend to relationships with its suppliers. If you have an unpaid tax debt, you must act now.”
RedZed specialises in providing finance options for small businesses and offers lending products up to 85% of the value of supporting residential security, or 75% against the value of a commercial property, with terms of up to 30 years. It also provides options for business owners whose credit reports have been impacted by ATO debt disclosures.
“Our advice is don’t delay in speaking with a professional,” Fisher said. “Contrary to what many believe, there are many options available, and the quicker you can get onto it, the quicker you can get into a solution that works for both you and the ATO.”
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