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The Bank of the ATO

19 Sep 2019 11:17 AM -
Who it impacts
What does it say about a business
When do the rules change
Why Small to Medium Enterprises (herein SME) commonly have ATO arrears  
How can we help our small business clients

Arrears, debts, liabilities...

Unlike a salaried employee where their employer withholds a certain amount with each paycheck, sole proprietors, freelancers and business owners assume responsibility of the full tax burden. Once a business is up and running business owners will need to report their  income and other tax information to the ATO. Self-employed individuals who are earning above the $75,000 threshold must pay GST to the Australian Taxation Office.

As a small business owner you will complete a Business Activity Statement. The frequency will depend on your turnover. The main taxes you will report on in your BAS are: 
  • GST on all sales
  • tax you withhold from your employees’ pay instalments towards your own tax once you are in the Pay As You Go (herein PAYG) instalments system.
Businesses registered for GST use their BAS to report their business tax entitlements and obligations, including GST, PAYG instalments, PAYG withholding and Fringe Benefit Tax (herein FBT) instalments.
The due date to lodge and pay your BAS will vary depending on income. Most commonly in small businesses we see quarterly BAS.
The due dates are below:
Q1: July, August, September Due date 28th October 2019
Q2: October, November, December Due date 28th February 2019
Q3: January, February, March Due date 28th April 2020
Q4: April, May, June Due date 28th of July 2020
If a Business has not put money aside to meet these obligations, they can contact the ATO to request an extension or to enter into a payment plan.

Tax debt has grown considerably in Australia in recent years, increasing at a slightly higher rate than tax revenue. Collectable debt (that is, debt that is not disputed or subject to some form of insolvency administration) increased from $17.5 billion in 2012–13 to $23.7 billion by 2017–18.

Cash flow - the root of all problems

Cash flow is at the root of how a small business functions. It impacts both the day to day operations of a business as well as being a specific road block preventing  growth. Therefore, it is the number one reason we see so many small businesses go under.

Too many small businesses run their cash flow at a negative. Hence,  when funds are short it’s not uncommon to see SME’s dip into the money they should be setting aside for the ATO.  When it comes time to meeting tax payment obligations, many businesses end up owing money to the ATO. 

'Bank of ATO' closes their doors

Historically, whilst arrears could impact potential borrowing capacity, the debt wasn’t reported to credit agencies. Therefore, it was not uncommon to see businesses using the ATO as an overdraft facility.
 
In 2017 discussions began around a proposal for outstanding ATO debts to be reported to credit agencies. This meant that businesses with outstanding tax debt could be negatively affected when seeking business finance or trade credit.
Whilst this proposal is still being reviewed, in July 2019 Treasury announced business tax debt of  $100,000 for more than 90 days would be reported to credit agencies.

Businesses that are communicating with the ATO, with the aim of resolving or managing their tax debt, would be exempt from disclosure, even if they were above the $100,000 threshold. Additionally, businesses disputing their tax debt would also be exempt.
 
Many Australian businesses have been effectively managing their tax debts. Having a debt arrangement with the ATO doesn’t mean a business isn’t successful or doesn’t have growth potential. Whilst it may be a sign of poor management, on the other hand, it is an indication of high turnover. Despite this, the ATO's new reporting powers will motivate more business owners to look for other forms of finance instead of using the Bank of ATO. 

This is where you come in...

The Federal Government’s crackdown is likely to prompt risk adverse business owners to move quickly in seeking alternative funding to avoid being referred to credit reporting agencies. In the last 12-18 months, options for SME clients have dramatically increased, now including facilities for both established and startup businesses.

Some of the funding solutions you could offer to your clients are: 
  • Business loans - secured and unsecured
  • Business line of credit/ business overdraft - secured and unsecured
  • Business credit card – unsecured
  • Asset and equipment finance – secured against the asset or equipment
  • Invoice Finance – secured against the client’s debtor book.
At NLG Leasing we have access to a number of financiers who specialise in cash flow lending. We can help you work out which solution is right for your client and eligibility criteria. If you ask the question “how are you with cash flow and working capital?” We can help you provide the answer.
In property finance, we traditionally see the Christmas/Holiday period reflect a very quiet time in the industry. For small businesses, however, this can be their busiest time of year and therefore may need funding solutions. This could be to purchase enough stock, pay operational costs and cover leave entitlements.

When small business owners don’t work, unlike a PAYG role entitled to 4 weeks paid leave a year, they will often be leading up to a costly period with no income for the duration. As a broker, now is the time to have a conversation with your client about their strategy to cover cash flow over the holiday period. If you need assistance in how to promote this service to your client base please contact us.

Happy to help.

If you are looking for a solution to assist your consumer and commercial clients with all asset, equipment and cash flow finance solutions - but don’t yet have the knowledge and can’t justify the high costs associated with multiple accreditations, specialist systems or a full time specialist on the payroll – then NLG Leasing is the right business partner for you. If you would like more assistance, please contact the NLG Leasing team on 1300 722 011 or email support@nlgleasing.com.au

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