Are business owners using the ATO as a line of credit?

Updated on 5th September 2024

Over the past few years, many small businesses have been treating the tax office like a bank. By delaying or deprioritising the payment of their tax debts, businesses simply “kick the can” down the road when it comes to that debt.

But the reality is that business owners using the Australian Tax Office (ATO) as an unsanctioned line of credit is just a temporary solution addressing a pressing problem, i.e., a stop-gap measure, at best.

If you are a small or medium sized enterprise needing a financial solution to ensure ongoing operation and long-term success, there are better options than running up ATO debt.

Is the ATO a good line of credit?

Many small businesses consider money owed to the Australian Taxation Office as an informal ‘line of credit’. The thought process is to simply delay or push off paying off their tax debt for as long as possible

Of course, there can be many reasons why an SME might want to avoid paying off the money they owe in tax for as long as possible.

Some businesses may be unaware of alternative business funding solutions available. Others may erroneously believe that it is too hard to arrange other formal commercial finance facilities. And others may just be taking advantage of the relative leniency of the ATO.

But the reality is quite the opposite.

The ATO’s New Approach to SME Debt

In recent years, and continuing into 2024, the ATO has adopted a more aggressive approach to debt collection. This shift marks a transition from the previous, more lenient approach taken during the COVID-19 pandemic where SMEs needed more support.

According to reports, the habits of delaying payments during the pandemic have continued long after the height of that tumultuous period. ABC news noted that total collectible debt at the end of 2023 was $52.4 billion. Compare this to the amount owed at the end of 2019: $26.4 billion.

The bulk of outstanding ATO debt – around $35 billion – is being carried by our nation’s SMEs, primarily from tax withheld from salaries, GST, and income tax on profits. But the most telling figure is that around half of the total collectible debt emerged in the past 12 months, in part driven by the end of the ATO’s amnesty period for SMEs that failed to lodge tax returns and BAS statements between December 2019 and the March 2022. This added to the legacy debt that accrued during and after the COVID period.

But now, the ATO is gunning on “clawing back” the $50 billion owed by SMEs.

In terms of enforcement activity, there is now clear evidence now that the days of light touch regulation by the ATO are a distant memory and it has its foot firmly on the pedal in a bid to satisfy community expectations.

• More than 100,000 new payment plans were negotiated between the ATO and Australian businesses in May 2024.
• The number of wind-up actions commenced by the ATO in 2023-24 jumped to 770, a substantial increase over the previous three years.
• Director penalty notices are on the rise, tracking towards an annual tally of 35,000 individuals who are being held personally liable for a company’s failure to comply with its tax and super obligations.

For small and medium sized enterprises this can pose a problem to their cash flow management. Companies with tight or restricted access to working capital can find themselves facing a sticky situation when the ATO comes knocking. Fortunately, there are legitimate financial solutions available to help businesses stay afloat and ahead of the tax debt.

Finding Finance Solutions for your Tax Debt with ScotPac

ScotPac’s breadth of products, scale of funding, and flexible approach means we can assist almost any business in any situation. We offer an unmatched suite of scalable funding options, ranging from $10,000 to $150 million, which currently support more than 8,500 businesses. Some of our lending products that are well-suited to supporting businesses with regular payment plans include:

Invoice Finance: Our award-winning invoice finance product gives businesses the flexibility of accessing the value of unpaid sales invoices, up to $150 million, putting cash flow back in your control. Many SMEs and business owners are not aware of how Invoice Finance can help repay their ATO obligations and grow their business more holistically.

Cash Line: A swift and cost-effective funding solution that functions like a fixed line of credit up to $250,000, with no principal repayments and no requirement for property security.

Boost Business Loan: Businesses looking for a quick cash injection can apply online to access funding between $10,000 and $500,000, up to 150% of monthly sales, including up to $100,000 without security.

Why you should speak to your local ScotPac office today

ScotPac is the largest non-banking lender in Australia and supports over 8500 businesses. In fact, our lending specialists fund $23.9 billion of invoices annually and bring over 35 years of industry experience to each and every tailored Invoice Finance solution.

Do you need to speak to your local ScotPac office today? As the ATO continues to crack down on SMEs who have outstanding payments and considering that directors can actually be held personally liable for ATO debt, the answer is yes!

Despite years of a lax approach from the tax office, tax debt is not a reliable or long term line of credit. From the default rates of interest and the risk of penalties to the tricky nature of managing creditor relationships with the ATO, unauthorised build-up of debt can cause long term devastation for a business.