The recent report that the ATO is chasing a back-log of $18 billion in debt should ring alarm bells with all business owners. Crtically, small business tax payers account for more than 60 per cent of outstanding debt.
Not paying ATO debts is a dangerous game. The reason being, the ATO have powers far greater than other business creditors.
For starters, overdue tax is subject to penalty interest rates which are higher than standard bank interest (currently 9.59%) and the ATO interest is not tax deductible, unlike bank interest.
For tax debts against individuals exceeding $5,000 the ATO have a general policy of proceeding to bankruptcy, even if it may not be commercially viable to do so. The reason being it then effectively passes the power to the trustee in bankruptcy to flush out any assets which have been improperly disposed of or may form part of the bankrupt estate.
For company tax debts, the ATO is the major petitioning creditor for wind up of companies.
The ATO have powers to pursue directors of failed companies personally, in circumstances which go well beyond the powers of others creditors. For example, directors who allow a company to trade whilst insolvent face a real risk of becoming personally liable for unpaid tax debts of the company.
Businesses which are unable to pay their tax debts need to seek urgent help from an accountant, in order to come to an arrangement with the ATO quickly. If the position is severe, help should be sought from an insolvency practitioner.
Businesses which have outstanding tax debts generally operate poor financial systems and controls and this usually means that billing and collection of their own accounts is handled poorly.
As part of the solution, such business need help to set up and operate tight billing and collection systems to prevent further problems down the track.
About the Author
Roger Mendelson is the CEO of Prushka Fast Debt Recovery Pty Ltd, principal of Mendelsons Lawyers Pty Ltd and is the author of The Ten Mistakes Businesses Make and How to Avoid Them and Business Survival, both published by New Holland Publishers in 2009.
