If you have tax debt with the Australian Taxation Office (ATO), it’s important to clear it as soon as you can. According to the latest figures from the Australian Financial Security Authority, ATO debt is a significant cause of business-related personal bankruptcies.
Even if your ATO debt doesn’t reach that worst-case scenario, it may be registered with credit reporting agencies, which can affect your ability to get future finance approved on the best possible terms and conditions. You or your business can also face legal action if you don’t take steps to repay your ATO debt.
Thankfully, there are simple financial options you can take to help you clear your ATO debt, just like you can to help you clear your other business debt.
Enter into a payment plan
If you owe less than $100,000 to the ATO, you can enter into a payment plan. If your ATO debt consists of an overdue amount from your business activity statements (BAS), you can also enter into an interest-free repayment plan if you meet all of the following eligibility conditions:
- You have an annual turnover that’s less than $2 million.
- You owe less than $50,000 on your BAS lodgements.
- Your BAS debt is less than 12 months old.
- You have a good BAS lodgement and payment record.
- You can’t obtain any other business finance.
- You can demonstrate that your business is viable.
If you’re like most businesses, you will have a quarterly GST reporting and payment obligation to the ATO.
Budget for your payments
Budgeting is essential in business. It involves forecasting your future revenue and expenses for a defined future period (e.g. for the next week, month, quarter, half-year or year). If you have ATO debt and you’ve entered into a payment plan, you need to factor in your repayments to help you to clear it. Look at ways to increase your revenue or reduce other non-essential expenses to help you do that.
Use Sale-back Finance
Sale-back Finance can help you turn your non-liquid business assets (like equipment or machinery) into cash, while still retaining and using them. Sale-back Finance lets you unlock cash which you could use to help pay off your ATO debt. The interest on Sale-back Finance is tax-deductible.
Sale-back Finance may be a great option if your business is asset rich but cash poor. You can usually arrange Sale-back Finance over terms of 3 to 5 years, and it can also be used in conjunction with Invoice Finance.
Use Invoice Finance
Invoice Finance helps you access cash from your unpaid customer invoices. If you offer credit terms to your customers, this can be a great way to get paid faster so that you can clear any ATO debt you have.
It can also help you pay for your future ATO obligations on time because you won’t be waiting for your customers to pay you. It can be a really effective tool to free up cash flow. Invoice Finance works as a line of credit that you can use whenever you need it. So you’re not paying interest on a lump sum amount like you would with a term business loan. You only pay interest on the amount you draw down.