Have you heard that the Australian
Taxation Office (ATO) is pursuing tax debt more aggressively than ever? Its
most recent strategy has been to send more garnishee notifications to business
owners who still owe taxes. That implies that they could take money directly
out of your bank account to pay off obligations. Everything you should know
about the crackdown and how to prevent it are detailed below.
Be careful. Keep current.
The simplest approach to prevent
the crackdown is to keep your taxes current, which virtually goes without
saying. The ATO website lists all deadlines for filing business taxes and is a
great resource for learning how to file and pay your BAS. The dates for filing
can be found at ato.gov.au; tax agents
may have different deadlines.
What if you are unable to pay when due?
Maintain timely lodging of your
tax return. You shouldn’t delay lodging your tax return just because you can’t
make your payment on time. In fact, by failing to check in on time, you will be
penalised and your financial situation will worsen. One of the biggest errors
that business owners make is not providing payment because they cannot now
afford to do so. It is preferable to lodge on time and speak with the ATO to
arrange a payment schedule than to fail to lodge at all. Businesses that lodge
even if they can’t pay right away are seen more favourably by the ATO (and
credit agencies).
Proactive behaviour benefits everyone.
Due to the ATO’s requirement that
unlodged returns be submitted before a payment plan can be established, lodging
on time will actually help you save both time and money. You might even be able
to work out an extension to avoid paying any fines.
Small business owners should know
that the ATO is not trying to destroy them and that they can expect some
leniency if they are prepared to cooperate. Here, communication is crucial. Be
proactive and phone them to set up a payment plan if you’re worried you won’t
be able to pay your taxes on time so they don’t have to go after you. They save
resources by doing this, and you might avoid paying fines. It’s this proactive
contact that might be able to keep you out of court or a garnishee letter.
What a tax debt payment plan entail
Keep in mind that any subsequent
BAS payments are payable in full and on time even if you are able to work out a
payment plan with the ATO. The ATO may cancel the payment plan and the entire
amount becomes owing if you fail to make these payments. They might then send
out a garnishee notice.
Regardless of whether you have a
payment plan in place, your tax obligation will initially accrue interest, and
the ATO will use any tax refunds you are entitled to decrease your debt.
Penalties for failure to pay
The ATO doesn’t want to close
down your business because then they wouldn’t be able to collect any more tax
from you. In actuality, the ATO’s debt collection programme only started
bankruptcy proceedings in 1% of cases, according to an external evaluation of
the ATO.
The ATO has no incentive to
pursue tax obligations to the point where doing so harms enterprises. Having
said that, they are undoubtedly punishing companies who amass and fail to pay
their tax obligation far more severely. “We’re devoted to assisting taxpayers
who want to do the right thing and stopping those who don’t pay from enjoying
an unfair financial advantage,” the ATO website states. The ATO will make an
effort to get in touch with you by phone, letter, SMS, and MyGov
communications. In the absence of a response, they reserve the right to seek
payment through a collection agency or through the use of any ensuing credits
or refunds. A director penalty notice or a garnishee notice may be issued by
the ATO if you don’t cooperate with them to demonstrate that you are ready and
able to pay your tax due.
Notices of garnishment and collection companies
Without a payment plan in place,
the ATO may refer your debt to outside collection firms as its next course of
action. Your credit score may suffer as a result, which could jeopardise future
applications for business loans. Read our blog post on ATO tax arrears to learn
more about what the ATO can do with your tax debt information.
‘Stronger actions’ by the ATO
Additionally, they have the
option of taking what they refer to as “stronger steps,” such as
garnishee and director penalty notices. One of the most crucial lessons to
learn from this is that the ATO will only take this action against business owners
who:
• Refuse to Work With Them
• Repeatedly Default on Agreed Payment Plans
• Don’t Have the Capacity to Pay and Don’t
Take Steps to Improve Their Situation
• Were Subject to an Audit Where
Deliberate Avoidance Was Detected and Payment Avoidance Continued
• Appear to Be Engaging in Phoenix Activities
(using liquidation to avoid financial obligations without risking assets and
with the intention of resuming business operations through a new entity).
In prior information packs, the
ATO reaffirmed that it only employs garnishee notices when the business owner
refuses to work with it to resolve outstanding tax issues.
Managing your tax debt
Dealing with past-due tax debt
can be challenging, in addition to keeping your cash flow under control and
submitting your taxes on time. The ATO does provide payment plans for companies
seeking to pay off their tax burden, but these aren’t necessarily appropriate
for Small to Medium Enterprises (SMEs).
Refinancing your tax debt into
reasonable biweekly payments is an additional choice. In order to prevent the
financial and emotional strain of mounting tax debt and possibly legal actions,
one method to accomplish this is by getting a business loan to pay off your tax
burden. You can refinance it rather than attempting to pay off $50,000 in ATO
debt all at once, which will obliterate even the most healthy cash flows. It
may be more cost-effective for certain enterprises to obtain a business loan,
settle the ATO debt, and handle the fortnightly repayments.
We specialise in working capital
loans for SMEs and provide small firms with adaptable financing alternatives to
pay off ATO debt. We’ve already assisted other businesses in managing their
cash flow and getting control over their tax debt.