How can SMEs steer through tax debt hurdles?

Amid the Australian Taxation Office (ATO) cracking down on its debt collection following its leniency throughout the pandemic, small- to medium-sized enterprises (SMEs) are feeling the heat from their tax obligations.

According to Andrew Ward, chief risk officer at Banjo Loans, an increasing number of businesses have contacted the lender over the past three to six months in order to manage their tax burdens.

Ward outlined three “essential strategies” that SMEs can follow to help them navigate their tax debts: proactive engagement with the ATO, realistic planning and monitoring of the financial situation; and collaborating with lenders.

The CRO said that businesses must “demonstrate integrity and strong management skills” through proactive engagement with the ATO.

“Ignoring the situation is not a viable strategy. Whether it’s the SME director or their accountant, actively communicating with the ATO to negotiate a solution is always better in the long run,” Ward said.

“It’s crucial that businesses don’t commit to repayment plans they can’t realistically meet. Understanding your cash flow and having a deep knowledge of your business is essential to entering a plan that’s appropriate and achievable.

“Leveraging professional relationships such as your accountant or broker to prepare various cash flow scenarios is important. We’ve seen cases where overly ambitious repayment plans have backfired, putting the business in an even more precarious position. It’s about finding that balance – ensuring the plan is both realistic and sustainable.”

Ward said that businesses must communicate with lenders early should they predict any difficulties in meeting their tax obligations.

“Giving us a heads-up allows us to help address potential issues before they escalate,” Ward said.

“We’re here to support businesses, but we can only do that effectively when there’s open communication. If we know what’s happening, we can explore alternative solutions together, rather than reacting to a crisis.”

It is estimated that SMEs currently owe between $30 and $40 billion in tax debt, with the ATO employing strategies such as director penalty notices, repayment plans, garnishee orders, legal action, and credit reporting to collect on those debts.

“The ATO is clearly encouraging businesses to confront their tax obligations head-on. Delays or failures to lodge returns can severely impact an SME’s ability to access finance or capital in the future,” Ward said.

Ward further emphasised the importance of prompt lodgement of BAS/IAS returns, even if there are still payments outstanding, saying that the ATO is “far less accommodating when returns are not lodged” as it makes it difficult for them to determine the exact debt or liability.

“Proactively entering a payment plan with the ATO can be good practice. If SMEs can demonstrate their commitment to maintaining these payments, lenders may still consider lending to them,” he said.

“In the current economic climate, SMEs are facing a myriad of challenges, but addressing tax issues promptly is essential to avoid more severe consequences down the road.”

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Adrian Suljanovic is a journalist at Broker Daily with more than two years experience reporting on all facets of the third party distribution channel.

Adrian has written for a range of business and finance titles including IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

E-mail Adrian at: This email address is being protected from spambots. You need JavaScript enabled to view it.