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Not paying tax a dangerous game for small businesses

By: Roger Mendelson, CEO of Prushka Fast Debt Recovery
24 January, 2014

The recent report that the ATO is chasing a back-log of $18 billion in debt, with small business tax payers accounting for more than 60 per cent of outstanding debt, should ring alarm bells with all business owners.

Not paying ATO debts is a dangerous game. The reason being, the ATO have powers far greater than other business creditors, as detailed below.

For starters, overdue tax is subject to penalty interest rates which are higher than standard bank interest (currently 9.59 per cent) and the ATO interest is not tax deductible - whereas bank interest is.

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 businesses need help to set up and operate tight billing and collection systems to prevent further problems down the track.

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jamie | Wednesday, January 29, 2014, 10:52 AM
If govt in this country for decades and in particular the last 6 years did not screw over SME's they would have more tax. A few years back I had a good year and thanks to my book keep found this out about 10 months after the end of the financial year. It blew me away and I was on a plan for the next 18 months to pay it. The enigma is if I made all this money why did I not have the money to [ay it. I was not paying my self great at all, in fact some of my workers were getting more. I did not buy a fancy new car Unlike tax with PAYG person , you get to keep it all. Us SME's need float to keep alive and that's why we are short. Add the wasted extra admin we all have these days, and though the GST was good for the country it was so much extra work for SME"s. We are doing it hard and just have wasteful govt feed on us likes vampire. lazy public servants who are also feeding So on us and practically have to murder someone to get fired. So the deadwood never goes. Plus our employees don't have the same job security or super of the public service, and we have to be bled by this inefficient lot. Cost and wages have been going up and up and up. I pay tax via weekly amount, so its smaller and does not hit me like a big chunk at the end of month, quarter of 6 months. i think small business and its employee's need their own party. labor is pathetic , the coalition is better. the only way we can pay labors debt that will take a generation is to make SME's and exporters better. There is too be being done on that front. I think SME's are tried of being taken for a ride, by all levels of government and even the big business I have even done that with 15 major suppliers who have got paid the best they have in gods know how long, I have got calls i dipped into credit which they find amazing. So much for plans and strategies from the accounting profession
ceirano | Wednesday, January 29, 2014, 11:07 PM
Isn't there a scheme enabling people in Jamie's position to average the tax over a three year period?? That would seem more equitable where unexpected profits are unusual in the business. cheers Jamie.
jamie | Thursday, January 30, 2014, 9:29 AM
As a manufacturer and exporter, all I see from the government is take. Austrade, asindustry and Australia unlimited are near useless to move my business forward. SME's are the key to paying labor's incredible debt.
Colin Spencer | Friday, January 31, 2014, 11:28 AM
My sympathies Jamie, but I have found the ATO to be very helpful rather than difficult. We had a similar situation to you caused by the downturn post global financial crisis. A phone conversation with a very helpful lady at the ATO took the pressure off and we agreed on a set figure per month until we stabilised our revenue. We managed to pay double the monthly agreed amount most months and paid off the debt. We all just have to watch carefully and to allocate our "average" monthly payments to the ATO to ensure that an odd quarter doesn't catch us out.
Janine | Saturday, February 1, 2014, 8:36 AM
So much time and energy is needed to be spent by SME's entering receipts for GST purposes, this requires paying staff for data entry and then management / accountants countless hours to check errors - all for what, not the SME's benefit. We never see a cent of it. We have been playing catch up for all of the businesses trading time, having to train staff (even qualified accounts staff) how to enter GST accurately. Our business as a result has been suffering with cash flow because every spare cent needs to go to the tax office. No flashy cars,houses, clothes, jewellery here. Just two very honest, hard working managers trying to make a living, while we see our staff drive off in fancy cars and building brand new houses. There is no incentive for small business owners who like you say make up 60 percent of business here in Australia. No wonder Australia is going down the gurgler, there is absolutely no support for small business whatsoever. We have not received one penny from anyone else and work 60+ hours every week to keep people employed and a roof over our heads. GST is the huge burden, whilst the Government rakes it in and then wastes on what - their own fancy cars, fancy homes and extravagant lifestyles. I don't see we have progressed at all, the rich & lazy are still getting richer and the hardest workers are getting poorer. Just like Roman times, I feel like a slave to the Government most of the time!
jamie. | Monday, February 3, 2014, 10:18 AM
Colin - I did speak to the tax department at that time. Well after paying 2010, last may and June for other issues I talked to the ATO and got a person who treated me like utter trash and most SME's would have been incensed by this person, then got a decent person some weeks later. The point I am also making is that if we made all this money why did we not have it to pay the ATo straight away, because in a sense we don't get the money we supposedly made, we have to keep so much up our sleeves for others, the employees and the business. Just because you make a profit, the after tax amount is not really yours in business. The govt has been wasteful and provided business with mediocre infrastructure, so it snot been doing the right by business either. We are just their to be screwed over for the cost of the mistakes of the government and all its machinery. The government is there for the people ,not the other way around and we need to be reminding them very loudly about it.
Colin Spencer | Monday, February 3, 2014, 10:38 AM
Quite true on those complaints, Jamie. I don't find it difficult to do the paperwork. But the time you waste is cumulative and a bother.
James | Monday, March 31, 2014, 3:25 PM
It seems from ICAC that Arthur Sinodinus was a director of AWH while that company was both trading and insolvent. It will be of no little interest to see if the ATO's enthusiasm for suing directors of insolvent companies extends that far up the political tree.