How PMA Can Help SMEs with ATO Debt

In March 2020, the federal government introduced a temporary ten-fold increase to the minimum amount owed to a creditor before they could file a statutory demand for payment from a company.

That move raised the threshold from $2,000 to $20,000, making it harder for creditors, including the ATO, to chase what they were owed. Companies were also given six months to respond to statutory demands, up from 21 days, and directors were given temporary protection from personal liability for insolvent trading.

The ATO maintained a largely hands-off posture for much of 2021 and early 2022, even after those temporary measures came to an end, as pandemic restrictions continued to threaten the economy and businesses recovered from a spate of natural disasters. Today, the ATO states 65% of collectable debt is held by small businesses, with a value of around $30 billion.

Now that the government has decided that it has given enough leeway for SMEs to recover from the lockdowns,they are expecting that enforcement actions from the tax office are expected to hit pre-COVID levels in 2023. Falling behind on tax payments can lead to severe consequences, including director penalties, wind up notices, and bankruptcy notices.

Keep in mind that only individuals are eligible for tax release if they can prove that their tax payments could seriously affect their ability to afford basic needs and provide for their families. Companies, trusts and partnerships, on the other hand, aren’t eligible for tax release so if your business is experiencing tax debt hardship, it’s important to find immediate solutions to prevent the problem of tax debt from compounding further down the line.

Fortunately, there are options available to help businesses address tax debts, including ATO debt payment plans and business tax debt loans.

ATO Debt Payment Plan

An ATO debt payment plan is an agreement between a business and the Australian Taxation Office (ATO) to pay off outstanding tax debts over time. This option is available to businesses that are unable to pay their tax debts in full but are willing to make regular payments towards the outstanding amount.

There are several advantages to using an ATO debt payment plan to address tax debts. Firstly, the ATO will generally waive any penalties or legal action if the business is making regular payments towards the outstanding tax debt. This can provide some relief to businesses that are struggling financially and cannot afford to pay the entire tax debt at once. Secondly, an ATO debt payment plan may be interest-free (provided a business meets the criteria), which can help to reduce the overall cost of paying off tax debts.

However, if a business doesn’t meet the criteria or perhaps, they want to clear an ATO tax debt because it’s having an adverse effect on their credit rating, then some business owners might prefer exploring alternative solutions like business tax debt loans.

Business Tax Debt Loans

A business tax debt loan is a type of financing that allows businesses to borrow funds to pay off outstanding tax debts. These loans are usually offered by private lenders or financial institutions. The amount that a business can borrow will depend on several factors, such as collateral security, revenue, the amount of tax debt owed, and exit strategy.

There are several advantages to using a business tax debt loan to pay off tax debts. Firstly, a loan can provide immediate relief from tax debt obligations, allowing the business to avoid any penalties or legal action.

Secondly, a loan can help to improve cash flow by consolidating multiple debts into a single manageable payment. This can be particularly beneficial for businesses that are struggling to meet their financial obligations due to unexpected expenses or cash flow problems.

At Private Mortgages Australia, we can offer up to $5M for first mortgages and up to $2M for second mortgages to businesses looking to settle their ATO debt. Loan terms can range from 3 months up to 12 months.

Business owners who are unable to arrange an ATO payment plan or secure a business loan from traditional finance institutions like banks, or who simply want to clear their ATO debt quickly to avoid the adverse effects of outstanding tax debts on their credit score are welcome to submit a scenario and we’ll gladly take a look. If you’re a broker with a client who currently has a problematic business ATO debt, then you can also submit a Quick Application on their behalf.

We endeavor to make the application process as quick as possible and can settle within 5 days upon receipt of all outstanding information.

Which Tax Debt Solution is Right for Your Business (or your clients’ business)?

Choosing between an ATO debt payment plan and a business tax debt loan will depend on several factors, including the amount of tax debt owed, the business's financial situation, and its ability to make regular payments towards the outstanding debt.

A client may be required to borrow funds for other business ventures but unable to access loans from mainstream lenders for that purpose due to outstanding business ATO debt.

If the business has significant tax debts and is struggling with financial management, a business tax debt loan that can consolidate multiple debts into a single payment may be the best option.

Consider your situation carefully so you can select the option that best suits your needs.

About PMA

Private Mortgages Australia offers short-term, flexible loans to business clients. Our credit team is readily available to accommodate brokers and borrowers alike. We pride ourselves on our quick response time. We also provide generous referrer fees to brokers within 24 hours of a loan settling with no clawbacks!

If you are a broker, accountant or business owner and have a business lending scenario you would like to discuss, feel free to contact us or you can complete our Quick App form here (< 10 mins).