Understanding Business Tax Debt

Author: Bessie Hassan

Running your own business takes a huge amount of drive, passion and hard work. Yet sometimes, despite the best of intentions, this may not be enough to keep you in the green.

Whether your business is large or small, having to cover a tax debt can have a detrimental impact on your cash flow and operations, especially if things are pretty tight already.

Fortunately, there are a handful of ways businesses can regain control of their finances and come out on top. Let’s take a look below.

Business debt and the ATO

In July 2019, new laws were introduced that allow the Australian Tax Office (ATO) to disclose a business's tax debt information to creditors. They can do this in the following situations:

• The tax debt is more than $10,000 and has been unpaid for over 90 days
• The debt is not in dispute
• No payment plan has been arranged with the ATO, or the business has defaulted on an existing payment plan

This process can have a significant impact on a business’s credit score and make it harder to get finance. So what can you do to avoid it?

What to do if your business has a tax debt

Start by contacting the ATO. They may be able to arrange an automated payment plan where you can repay the debt over a longer period of time. Keep in mind this is usually for debts of $100,00 or less.

Before being approved for a payment plan, the ATO will need to assess your business to make sure it’s “viable” or capable of repaying the full amount. To do this, they’ll assess your gross margin, cash flow, assets and liabilities (including working capital) and liquidity.

If you don’t qualify for a payment plan or want to pay off the debt in one big hit, you also have the option to apply for a tax debt loan.

What is a tax debt loan and how does it work?

Certain lenders will offer tax debt loans to businesses, even if their credit history is less than perfect. As with all loans, criteria will vary across lenders.

Tax debt loans are designed to be a short-term financial solution, best suited to small and medium-sized businesses. Funds are provided to cover your tax debt, and in some cases they can also be used to cover things like unpaid bills, day-to-day expenses and employee wages.

Lender repayment terms are usually more flexible than the ATO’s, meaning you can repay your loan at a pace you’re more comfortable with. Loan terms generally last between a few months to seven years.

Factors to keep in mind

Tax debt loans come with their own set of risks and considerations. Make sure you’re across the below before applying:

• Fees. Some lenders will charge excessively high fees for tax debt loans and related services, so make sure you’re across all the fine print before signing up to an ongoing financial arrangement.
• Compounding debt. Taking out a loan to cover outstanding debts can be risky. You don’t want to become trapped in a cycle of debt that you can’t get a handle on.

If you’re still unsure about the best solution for your business, talk to a professional. At Tax Debt Resolved, we are specially trained to handle messy financial situations and can help you to come up with a workable solution. We understand the urgency of these situations and get that it isn’t always your fault.

As a business owner, you don’t need to take on tax debt alone. But you do need to be proactive and face it head on before it becomes a bigger problem. The sooner you face it, the closer you’ll be to coming out on top.

Bessie Hassan is a money expert at Finder