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ATO DEBTS AND RESTRUCTURE PLANS

25 January 2021

ATO DEBTS AND RESTRUCTURE PLANS

“With so many taxpayers in payment plans, the commencement of the Small Business Restructuring Process presents the perfect opportunity for small businesses to deal with crushing tax debts once and for all…”

AUTHOR: Michael Brennan

Being in business is tough at the best of times. Throw in a global pandemic, day-to-day uncertainty, changing consumer trends and rules that change almost as quickly as they were put into place and you have a pretty clear picture of the economic quicksand that is swallowing businesses across regional Queensland.

What isn’t talked about so freely is the role the Australian Taxation Office (ATO) plays in these scenarios. In nine out of ten business restructures, it is actually the ATO that is the single largest creditor.

The ATO’s 2019/2020 Annual Report identified that there were 680,000 debt repayment plans in place at the time of the report (the figure covers both personal and corporate tax debts).

It also stated that by 30 June 2020, the amount of ‘collectable’ tax debt owed by small businesses in Australia rose from $16.5B the previous period to $21.4B.  This is a staggering 30% increase in tax debt. The previous increase was 9%.

These figures aren’t just a bunch of innocuous numbers. They represent the enormous pain, suffering and likely soul-destroying reality that a business dream has turned into a living nightmare. The sheer volume of businesses in this position indicate there are many people who need help.

With so many taxpayers in payment plans, the commencement of the Small Business Restructuring Process (SBRP) presents the perfect opportunity for small businesses to deal with crushing tax debts once and for all.

Most tax payment plans involve taxpayers repaying the debt in full, plus interest, over a period of time.  The ATO has no ability to write off tax debt for corporate entities.  You may get some relief from penalties and interest, but the dent must get paid in full eventually or the company placed into liquidation.

Most long-term repayment plans fail or are defaulted on because they are onerous on a business that is struggling.  As well as repaying the historical debt, businesses must keep up with all new and future tax debt otherwise they default on the payment arrangement and the whole amount becomes due and payable. For many business owners, it’s a no-win situation.

The SBRP is a once in a lifetime opportunity for business to work with the ATO to write off the unmanageable proportion of the ATO debt.

All tax debt will be subject to a restructure proposal, along with other unsecured debts.  If creditors vote to accept a reduced amount, the ATO is bound by the restructure.

For example:

If a business had a tax debt of $120,000, the changes would look something like this:

 

Tax Repayment PlanSmall Business Restructure Plan
$5,000 per month for 24ths plus interest plus current and future tax debtsPayment to all creditors of 10 cents / $ owed payable over 12 months
Other payments – All other creditors in full plus ongoing tax obligationsOther payments – ongoing tax obligations
Amount payable to ATO – $120,000 plus interestAmount payable to ATO -$12,000
Time frame to pay off debt – 2 years plusTime frame to pay off debt – 12 months

The introduction of the SBRP could have significant and long-lasting impacts for struggling businesses and their owners as they look re-build their future.

[ENDS]

The trusted Offermans team can support you to navigate the new world order and will work alongside you to help your business to recover from the challenges and preserve its value. For more information go to www.offermans.com.au

 

About the Author:

Michael has worked in the solvency and business improvement field for over two decades.

As a business owner himself, he is passionate about supporting business owners to achieve peace of mind, less stress, greater confidence and more resilient operations.