ATO Focus on Small Businesses with tax debts

From 1 July, running a small business with a tax debt could affect your business’s credit rating.  The ATO have new powers which allows them to pass your business information onto the Credit Reporting Bureaus, if you have not previously communicated with the ATO about managing outstanding debts. This could have a severe impact on business cash flow, support from financiers as well as supplier credit being stopped.

With the ATO cracking down on small business tax debt, staying on top of your obligations is now more important than ever. Apart from late penalties, general interest charges and racking up a big tax bill, also being behind in repayments will start to affect your credit score. This is part of the Government’s strategy to reduce outstanding tax debts. It’s proposed to only impact businesses with tax debts over $10,000 that is at least 90 days overdue.

These new powers shouldn’t come as a surprise as the ATO is owed about $19 billion in overdue taxes, with approximately two thirds of this owed by small business (turnover less than $2 million). The ATO, however, has to keep a balance between collecting this debt without hurting small business cash flow. That being said, we have noticed that the ATO is being more aggressive on businesses that are continuing to build on their tax debts and not paying any of it off.

Below is a guide on how we have recently seen the ATO handle some small business tax debts:

  • Your Tax Debt will accrue interest (regardless of whether or not you have a payment plan in place)
  • The ATO will apply any tax refunds you are due against any outstanding debts- to reduce your total debt
  • The ATO can refer your debt to external collection agencies, which could potentially affect your credit score
  • The ATO can pursue court notices and legal action if no action is taken by the business owner (worst case scenario if the ATO is ignored)

Given the above, having your small business credit rating affected, a new strategy of dealing with the ATO needs to be put in place. Rubiix has had great success in the past in communicating with the ATO. We have organised tax payment arrangements that suit our clients rather than the ATO, organised the reversal of general interest charges- some at times have been over $40,000- and of course successfully had any penalties remitted.

If you believe your small business may be affected by this new ATO strategy, or you need assistance in managing your business’s unpaid tax debt please contact us.

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