Whether your client is running a business or is just an individual trying to make ends meet, there is nothing worse for them than to find they have a tax debt owing to the ATO, which most likely will also be accruing a general interest charge and perhaps even a shortfall interest charge.
The Australian tax system operates under a system of self-assessment, and this applies regardless of the type of tax being assessed, whether that is GST, FBT or income tax. However even with the guidance available from tax professionals, it is not unheard of for taxpayers to still face the prospect of being saddled with a tax debt that’s still on hand long after its due date.
This can be brought about due to cash flow difficulties or perhaps the effects of personal hardship. Each unfortunate circumstance can prevent affected taxpayers from meeting their obligations on time, ending up with them carrying the tax debt.
Missing a tax deadline will lead to the resulting outstanding debt being subject to the ATO’s general interest charge (GIC). The current rate of interest charged (for the January to March 2019 quarter) is 8.94% (compounding daily).
Let’s be clear. The ATO takes debt collection very seriously, as there is substantial revenue at stake. For example, the latest ATO annual report highlighted that collectable tax debt had grown to more than $23.7 billion for 2017-18 — up from $20.9 billion the year before.
According to the report, most of this relates to small businesses. To its credit, the ATO’s stated strategic focus is to “prevent debts arising”, but where they do arise it has also vowed to “take the most effective recovery action at the most appropriate time”.
Preventing tax debt in the first place They say that prevention is the best cure. As such, it is wise to offer clients guidance on good record keeping and managing cash flow, as these are the keys to avoiding a tax debt.
Particularly relevant for small business owners, there are certain measures that you can help with to prevent a tax debt from arising. Namely:
keeping their GST and income tax payments separate from their other financeskeeping an eye on their cash flow, if they are amenable to this, and helping predict monthly income and expenses, andupdating their business records frequently.
Knowing as and when a debt arises, and when it is payable, becomes key to ensuring that cash flow issues are appropriately managed. To our knowledge, the ATO is at this stage trialling digital tools and apps that can help business taxpayers in this regard, which we are keeping an eye on and will pass on more information as it comes to hand.
Getting into a payment plan If your client has difficulty meeting their tax debts, then a payment plan can be arranged with the ATO to alleviate such difficulties.
Payment arrangements can generally be applied for online, perhaps with your help, usually for individuals and sole traders with an income tax or an activity statement debt of $100,000 or less. Here is a link to the ATO’s payment plan estimator.) But for greater amounts or for more complex cases, a pre-emptive telephone call is generally recommended (and in some cases necessary), as this will clear up what needs to be put in place.
ATO guidance The ATO has helpfully provided a debt process fact sheet (get it here). It has also developed a brochureyou can use to speak to clients who may be experiencing difficulty paying their tax or serious hardship. Read more about how the ATO may be able to help here.
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#[amount owing], [ATO], [debt], [tax debt], [tax return]
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