Are you behind on payments to the Australian Taxation Office (ATO)? The majority of Australian businesses pay their tax on time. But collectively, small businesses owe $15 billion in tax debt, which accounts for almost two thirds of all tax debt owed in Australia. Unpaid business tax may cause serious issues for your company and could expose you to legal action from the ATO. As a company director, you need to be proactive in managing your business’ tax debt.
If you don’t pay your tax debt, there are several actions the ATO can take against a company or an individual including:
- Referring your tax debt to an external debt collector,
- Issuing you with a Garnishee Notice, a Director Penalty Notice, or a Statutory Demand followed by an application to the court to wind up your company, and
- On occasion, issuing you with a Departure Prohibition Order.
For individuals, the ATO may issue a garnishee notice to:
- your employer or contractor,
- banks, financial institutions and building societies where you have accounts, and
- people who owe money to you from the sale of real estate, such as purchasers, real estate agents and solicitors.
For businesses, the ATO may issue a garnishee notice to:
- your financial institution,
- trade debtors, and
- suppliers of merchant card facilities.
Director Penalty Notice
Directors can incur penalties for their company's unpaid PAYG withholding tax or superannuation The ATO has the power to issue a director penalty notice which can then in turn become legal proceedings by the ATO to recover the penalty.
Claim or summons
If you don't negotiate and take actionable steps with the ATO to address your debt, then the ATO may file a claim or summons in the relevant state court or territory. Once the court has recognised that the debt is owed, then the ATO may execute a judgment on the debt which can include serving a Bankruptcy notice.
If you have outstanding tax debt you need to act quickly and follow these steps to manage your tax debt before it gets out of control.
1. Understand Your Company's Financial Position
As a director or business owner it is imperative you have a clear understanding of your company's financial position. Ascertain how much you currently owe to suppliers or creditors and how much is owed to you. Moreover, make sure you know exactly how much tax you owe to the ATO. If it is late, know how late. Don't rely on 3rd parties to know your financial position. it is the duty of a director to be across the figures. Keep your records up-to-date and review your business’ financial statements including your profit and loss and cash flow statements. These will give you a clear picture of what may happen to your business in the near future and accurately determine how much or any tax installments can be made. If your company is drowning in tax debt and other debts, it may not be viable for much longer unless you act fast.
2. Make Sure You’re Getting Paid on Time
Late payments will affect your cash flow and can cause serious issues for your company. It can slow down your payment cycles making it a challenge for you to pay your tax debt and other expenses. Some tips to getting a prompt payment from your customers include:
- Invoice them straight away,
- Send clear invoices that provides all necessary details, including your bank details and payment method.
- Ask for a prompt payment with clear, specific payment terms, such as a 7-day or 14-day deadline. Make on-time payments worthwhile by including incentives or discounts,
- Allow for multiple payment methods, and
- Be sure to chase payments.
3. Your Activity Statements and Returns Must Be Lodged on Time
You need to lodge your business activity statements (BAS) and tax return on time, even if you can’t afford to pay. If you fail to lodge your statements and returns, the ATO can charge a failure to lodge (FTL) penalty. Make sure to keep your lodgments up to date even if you are in the process of negotiating a payment plan.
4. Communicate with the ATO
Communication is key. Stay in contact with the ATO, especially if you can’t pay your business taxes on time. The ATO is likely to look upon you positively if you’ve made an attempt to fulfill your obligations as a company director and keep them updated about your financial situation. Don’t ignore the ATO’s calls and keep them notified of any new developments, such as if your financial circumstances change and you are able to pay your tax debt in full.
5. Set Up an ATO Payment Plan
You can set up an ATO payment plan for your unpaid business tax debt. A payment plan gives you the opportunity to repay your tax debt over an approved period of time, so you don’t have to pay one lump sum which you can’t afford. Entering an ATO payment plan can help you avoid debt collection action and gives you an opportunity to pay your business tax debts in an affordable way. If you can’t reach an approved payment plan with the ATO, they might consider accepting a security in exchange for deferring payment of your debt. This security could be anything from a registered mortgage or bank guarantee. It’s important you understand you need to meet your repayments when they fall due under the payment plan, otherwise the ATO can take further action to recover the debt owed to them.
6. Consider Serious Hardship and Release
If you’re a sole trader and have experienced serious hardship, the ATO has the ability to release you from some or all of your business tax debt. This includes your income tax, PAYG instalments and fringe benefits tax. Serious hardship is considered when payment of your business tax debt would leave you unable to provide the bare necessities for yourself, your family, or other people you are responsible for. Companies, trusts and partnerships unfortunately can’t apply for release from their tax debt, but there are other options available.
7. Take Out a Business Loan
An alternative to implementing an ATO payment plan, or to assist you getting one, is to take out a tax debt loan. This type of loan can be used to refinance your business tax debt, or give you funds to propose an up-front payment to secure a payment arrangement. Taking out a business loan to pay off your tax debt will ensure you’re up to date with your tax payments without having to worry about the ATO contacting you for repayments. Debt has the potential to sink companies, so don’t let it sink yours. We offer business loans to get your company back on track and keep it running for long-term success. You can use a business loan to pay your outstanding tax debts, trade debts and increase your business’ working capital.
8. Consult an Expert Tax Debt Negotiator
Sometimes tax debt can get out of hand, especially for a small business. Keep on top of managing your businesses tax debt so you can avoid recovery actions by the ATO.
It’s important you seek advice from business tax debt professionals who can look at your individual financial circumstances and tailor a solution for you. At Tax Debt Resolved, we can negotiate your tax debt with the ATO and get your finances back on track. Get in touch with us today on 1300 628 586 for a free business tax debt consultation.
For more information on tax debt solutions, check out our tax debt page.