How to Help Your Clients Clear ATO Tax Debt

March 31st, 2023

If your clients have tax debt with the Australian Taxation Office (ATO), it’s important they clear it as soon as possible to avoid penalties such as a Bankruptcy Notice, Garnishee Notice, a Director Penlaty Notice (DPN), or other legal action. According to data from the Australian Financial Security Authority, ATO debt is a significant cause of business-related personal bankruptcies — but it doesn’t have to be.

Even if your clients’ ATO debt doesn’t reach that worst-case scenario, it may still be registered with credit reporting agencies, which can affect their ability to get future finance approved on the best possible terms and conditions.  

Thankfully, there are simple financial options you can step your clients through to help clear their ATO debt.

Enter into a payment plan

If your client owes less than $100,000 to the ATO, they can enter into a payment plan. If the ATO debt consists of an overdue amount from their business activity statements (BAS), they can also enter into an interest-free repayment plan if they meet all of the following eligibility conditions: 

  • Have an annual turnover that’s less than $2 million.
  • Owe less than $50,000 on BAS lodgements.
  • BAS debt is less than 12 months old.
  • Have a good BAS lodgement and payment record.
  • Can’t obtain any other business finance.
  • Can demonstrate that the business is viable.

If your clients are like most businesses, they will have a quarterly GST reporting and payment obligation to the ATO, which can cause significant cash flow problems throughout the entire year.

Cash flow budgeting for payments 

Budgeting is essential in business — a highly profitable business can have a great bottom line, but still be experiencing cash flow issues if the timing of cash inflow and outflow is misaligned. Forecasting future revenue and expenses for a defined period (e.g. for the next week, month, quarter, half-year or year) can help with managing cash flow timing. If your clients have ATO debt and they’ve entered into a payment plan, they need to factor in these repayments into their budget in order to clear the debt. Helping them look at ways to increase revenue or reduce other non-essential expenses can help them get into the clear. 

Unlock capital with Sale-back Finance

Sale-back Finance can help turn non-liquid business assets (like equipment or machinery) into cash, while the business still retains and uses them. Sale-back Finance allows your clients to unlock cash which they could use to help pay off their ATO debt. The interest on Sale-back Finance is tax-deductible.

Sale-back Finance may be a great option if a business is asset-rich but cash-poor. You can usually arrange Sale-back Finance over terms of 3 to 5 years, and it is also used in conjunction with Invoice Finance for optimal cash flow support.

Manage cash flow with Invoice Finance

Invoice Finance helps businesses access cash from their unpaid customer invoices. If they offer credit terms to customers, this can be a great way to get paid faster so they can clear their ATO debt and manage their budgeting.  

Invoice Finance can also help businesses pay for future ATO obligations on time because they won’t be waiting for customers to pay. It can be a really effective tool to free up cash flow. Invoice Finance works as a line of credit that can be accessed whenever needed — this means the business does not pay interest on a lump sum amount like they would with a term business loan. They only pay interest on the amount drawn down.

If you'd like to learn how Earlypay can help boost your business clients’ working capital to fund growth or keep on top of the day-to-day operations of their businesses, contact Earlypay’s helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].

If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].