If your business has a tax debt, you’re not alone. The Australian Tax Office (ATO) was owed $12.5 billion by Australian small businesses at 30 June 2016. While most of this was paid on time, many businesses cannot afford to pay their GST and PAYG debts, as well as their superannuation debts, by their due dates.
A few questions can arise here:
- What happens if you don’t lodge on time?
- What will the ATO do if you can’t pay in full?
- What can you do to keep the ATO happy?
Here’s a quick guide to managing your business tax debt.
Always submit your ATO lodgements on time
If you can’t pay your business activity statement (BAS), instalment activity statement (IAS) or superannuation debts on time, you should still report them. Most people know their BAS and IAS lodgement dates, but few are aware that if they’re unable to pay staff super they should lodge a superannuation guarantee charge (SGC) return with the ATO at the end of each quarter. Extensions are given if a tax agent is lodging the returns.
It’s very important that you lodge on time. In the past, businesses may have waited to lodge until they could pay. However, since 2012, if a company fails to lodge its BAS, IAS or SGC return within three months of the due date, the directors become personally liable for the PAYG and SGC debts. Additionally, penalties and interest will accrue on these debts.
The ATO is also more willing to work with you when you are otherwise complying.
If you can’t pay your ATO debt in full
Entering into an ATO payment arrangement is the best way to help manage cashflow if you can’t pay your ATO or superannuation debts when they’re due.
Although recent times have been tougher for small business, the ATO has clamped down on non-compliant taxpayers. The ATO wants to help businesses comply and the numbers show it. Approximately 950,000 ATO payment plans were entered into in the 2016 financial year, up from 750,000 in 2014.
Accountants often help their clients to obtain ATO payment arrangements, but directors should make sure that their business can afford what’s being proposed. As well as paying the outstanding debt, all future ATO lodgement and payment obligations will need to be met on time. Failing a payment arrangement will make it harder to get the next one.
If you have a number of outstanding lodgements or a large ATO debt
Before submitting outstanding lodgements it’s important to stop and plan for what comes next. This is where your accountant may be out of their comfort zone and specialist help is recommended.
Recently at Cactus Consulting we’ve helped a number of clients whose businesses are getting back on track and who have moved to new accountants to bring their tax affairs up to date. After lodging two years’ (and in one case eight years’!) worth of returns, a large ATO debt – inflated by interest and penalties – needed to be dealt with, and the ATO rejected the accountants’ proposals.
In these circumstances, the ATO can and will take serious enforcement action against the company, including issuing:
- a Director Penalty Notice (DPN) – making the directors personally liable for the company’s PAYG or SGC debts
- a Garnishee Notice – issued to the company’s bank requiring them to pay funds to the ATO
- a Statutory Demand – giving the company 21 days to pay the debt in full, or enter a payment arrangement, otherwise the ATO may take steps to liquidate the company.
To avoid the ATO taking enforcement action it’s really important to propose a payment arrangement when your outstanding lodgements are submitted or soon afterwards. In some circumstances it may also be necessary to grant the ATO a mortgage over your personal property, or consider refinancing, to help secure a payment arrangement.
If an arrangement is affordable, it can be the lifeline a business needs to get back on track. If not, it can be a slippery slope of failing arrangements and risking ATO enforcement action and insolvency.
About the author
Jarvis Archer is a small- to medium-business debt negotiation, turnaround and insolvency specialist. His qualifications include Certified Turnaround Analyst, Liquidator and Chartered Accountant. He brings over 15 years’ experience helping businesses and directors overcome financial difficulties. He is a senior manager at turnaround firm Cactus Consulting and associated insolvency firm Pearce & Heers.