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It’s almost the end of another financial year, and for many Australians it’s been a tough 12 months as rising interest rates and other cost-of-living pressures have scarred bank balances across the nation. If understanding how to manage tax debt in your business is on your mind at the moment, it’s important to understand your responsibilities – and the legal and financial consequences of not meeting them.
If you ask your accountant, they’ll almost certainly tell you that fulfilling tax obligations should rank at the top of your business compliance priorities.
The reality, though? Many Australian business owners let tax debt build up. It’s one of the reasons that small businesses are on the ATO hit list this financial year. Because they’ll be taking a closer look at businesses that aren’t fulfilling their tax obligations, it’s more important than ever to deal with your business tax debt before further action is taken.
To help you manage the tax debt in your business, try these tips:
Assess your financial situation
Ignoring things doesn’t solve the problem. And it definitely doesn’t give you clarity about what you owe – and what might be owed to you.
No matter how you’ve managed things in the past, start repairing things by keeping records up to date. Your accountant can give you a clearer picture – and can also help you negotiate with the ATO.
Make your tax debt a priority
Be realistic and work out what you can pay regularly. The ATO won’t accept a payment plan that’s too small – especially if your business tax debt is big. Budget carefully and trim what you can to help you pay your tax debt faster and avoid interest charges.
Chase invoices to get paid on time
When people don’t pay your invoices on time, the flow-on effect is that you can’t meet your own debt obligations.
Lodge activity statements and returns on time
Even if you know you can’t pay what you owe on time, it’s critical that you still lodge returns and activity statements on time.
Communicate with the ATO
If you look like you’re trying, the ATO will, generally, view you more favourably. You might not have the money now but by talking to them, rather than pretending you don’t have any debt, you are more likely to avoid serious ramifications.
Establish a payment plan – and stick to it
Unpaid tax debt can be managed with a payment plan. You’ll pay interest on the plan but you can sometimes negotiate removing that once the debt is repaid in full.
Seek professional advice and support
Financial counselling, refinancing loans to help repay business debt, citing hardship, or simply working with your accountant or a financial adviser to help create a realistic budget that will enable you to maintain debt repayments and get back on track are all options to help you manage business tax debt.
Consequences of unpaid business tax debt
Unpaid business tax debt can expose you to potential legal action and cause serious issues. If the debt blows out, the ATO can disclose your tax debt information to registered credit reporting bureaus (CRBs) and that information can be included in credit reports, which can affect your ability to borrow. Insolvency proceedings can be another step in extreme circumstances, so if you are ignoring tax debt in your business, you need to start communicating, to help work through a repayment solution that will prevent further action being taken against you.
The bottom line
Dealing with any debt can be stressful but, when it comes to tax debt, clear communication is the best approach. And if you can’t bring yourself to talk to the ATO, ask your tax agent to do it on your behalf.
If things feel too hard, seek financial counselling support to help you understand all your options.
Go deeper: Financial counselling
Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
