Dealing with the ATO & Your Tax Debt

Author: AICD The Boardroom Report Volume 7, Issue 15, 12 August 2009

The tax man is the world’s largest creditor and is likely to feature in liquidations far more than any other creditor.

So what should you do if your tax debts are mounting in tough times?

Cliff Sanderson, a director of Restructuring Works, believes the Australian Taxation Office (ATO) is unfairly criticised about its debt collection procedures.

“There are some things to bear in mind,” he says.

“Firstly, businesses are expected to pay tax and so the ATO should be regarded as a creditor just like other creditors of a business.

Secondly, if a business does not pay tax or pays substantially late, that business is getting an unfair advantage over its competitors who are doing the right thing.

“The ATO has quite transparent procedures for dealing with businesses that can’t pay their tax bills and my experience has been that they are quite reasonable in agreeing to proposals put to them.

At present, the ATO is being very reasonable in dealing with businesses in financial distress. This particularly applies to small businesses – that is, those with annual turnovers of less than $2 million. If a small business is struggling, the ATO will most likely agree to a 12 month payment period free of interest and will look at deferring the due date for activity statement liabilities. Effectively that is principal deferral and no interest charge. Try getting that deal from a bank.”

Sanderson says the biggest mistakes small to medium sized enterprises make in dealing with their looming tax bills is failing to foresee an inability to pay on time or to act when it is known that a default is likely to occur.

“By preparing projections, a cash flow problem can be spotted many months ahead of time and plans can be put in place to deal with cash holes. My advice is to prepare projections and actively deal with cash flow problems before they arise,” he says.

Another mistake is not approaching the ATO with a reasonable plan when a problem arises. “If a plan is prepared, backed up by logical projections, then the ATO is highly likely to agree to a repayment scheme,” says Sanderson.

Many businesses also put an unrealistic repayment plan to the ATO, which inevitably results in a default in a few months. The ATO is reasonable in agreeing to the first repayment plan, but if that defaults, quite understandably, it is not as accommodating the next time around.”

Sanderson adds: “If you are not used to preparing projections or if you are not sure if your business is viable, then seek professional advice. A good adviser can help with the assessment of a business’s viability, prepare a plan to return the business to health and negotiate with the ATO and other creditors to get the business through the cash hole.”

Give Michael Royal a call on 1300 783 309 if you would like further assistance with resolving your Tax Debt. We are specialists in dealing with the ATO and ensuring commercial and feasible repayment plans are put to the ATO.

See also our article on ATO and Director Penalty Notices – click here.

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