The end of the financial year may be behind us, but for many small and medium enterprises the new year brings with it new challenges. The Australian Tax Office (ATO) has recently announced its proactive intention of chasing down businesses with significant and outstanding tax debt. What does this mean for you and your business?

ATO Focusing on Collections

According to the ATO, there has been a substantial and concerning increase in the amount of collectable debt among businesses, with the total estimated sum of $50.2 billion over the past four years representing an increase of 89 per cent.

While various factors, such as the more lenient approach during the COVID-19 pandemic, have contributed to this ballooning sum, the tax office is committed to reinforcing and re-establishing a culture of businesses paying tax on time as opposed to the existing expectation that tax debt can and should be categorised as a lower priority.

The Consequences of Not Paying Tax Debt

The more lenient approach of the last few years has meant that the ATO has been more willing to defer penalties and interest on payment plans for businesses with tax debt. This is no longer going to be the case.

Businesses are being warned not to rely on exemptions and remissions, especially those with $100,000 or more in debt and those with debt that is two or more years overdue. Moreover, the ATO has also indicated that it would be applying to wind-up more businesses in instances where there is evidence to support such a move. Some of our partners have indicated a noticeable increase in the usage of Directors Penalty Notices and Garnishee Notices recently.

Taking Steps to Manage Tax Affairs

As the business community shifts focus on this side of the end of the financial year, it is critical that owners and directors take steps to manage their tax affairs. The more proactive the ATO becomes, the more important proactive tax debt management becomes. 

Early Intervention for Tax Arrears

Some years ago, at the 30th National Convention for the Tax Institute, the Tax Commissioner, Chris Jordan AO, addressed the ATO’s reinvention of their response to debt management. 

Jordan described the approach as one of “early intervention” when it came to tax areas and focused on the following aspects:

1. Preventing Debt Escalation

It remains a priority of the ATO to prevent debts from escalating beyond people’s and business’s control. Ensuring repayment arrangements were adhered to is a big component of this particular strategy.

2. Focus on Viability

Among the focuses of the ATO would be a concentration on business viability. Specifically, this means a business’s ability to meet future obligations in the ATO’s assessment of cases.

3. Earlier Legal Action

Unlike the more lenient approach of the past, legal action would commence earlier in instances where such an approach is warranted. This would translate to wind-up actions in the case of a business displaying evidence of insolvency, the use of statutory powers where businesses have failed to pay employee superannuation entitlements or pay amounts in trust, and the like.

In the years since the Commissioner’s address, the ATO has announced that it will no longer be waiting until debts reach $340,00 on average before initiating action. Moving forwards, it will be proactively chasing outstanding debt when it exceeds $100,000, which is far closer to the overall average of creditors of $93,000.

The Role of Cash Flow Management

As a small or medium sized business, a key root cause for ongoing and ballooning tax debt is cash flow management. Without access to reliable working capital to both fund ongoing operations, fuel future growth, and pay off the ATO, businesses can be left in a compromised situation.

ScotPac works with clients across industries and with businesses of all sizes to proactively seek financial solutions to better manage cash flow and prevent tax debt. Instead of the tried and failed approach of considering one’s tax debt a form of ‘line of credit’, a flexible and customised financial facility can assist businesses in managing their payment arrangements and restoring their tax and trading position without compromising their company’s operations or growth.

Get Ahead of Tax Debt with ScotPac

ScotPac is more than just the largest non-bank lender in Australia and New Zealand. We’re experts and advocates for SMEs looking for working capital solutions to ensure sustainable business success. 

The breadth and depth of our financial capability – combined with our dedication to constantly evolving and transforming with the developments and improvements of technology – means our capacity to assist and the speed with which we can offer that assistance is unmatched.

We work with clients as partners and that’s why they stick with us and utilise our flexible solutions for many years.

Contact Our Team Today

If you’re interested in getting ahead of your tax debt or don’t want to be one of the many SMEs responsible for the $33 billion of collectible debt the ATO is going after, make sure to contact your local ScotPac office today.

We’ll explore ways of unlocking additional capital for you and your business, and with our fast approvals and no need for property security, it’s easier and quicker than ever before.