Financial stress can be difficult to manage in both the corporate and personal financial spheres. Whether you're a business owner trying to keep your company afloat or an individual trying to cover everyday, costs, there is nothing worse than finding yourself in a situation where you 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.
When facing tax debt, it’s often tempting to either postpone addressing the issue or to panic and seek a quick-fix solution for your debt problems. However we encourage that you resist the urge to procrastinate or hastily seek shortcuts. Instead, engage with your accountant promptly to handle the situation effectively and maintain financial stability.
🟠What happens if you don't pay on time
Missing a tax deadline will lead to the following:
ATO automatically adds a general interest charge (GIC) to what you owe or unpaid amounts.
Your debt will grow each day your debt remains unpaid. Interest calculates on a daily compounding basis on the amount outstanding and is added to your account periodically. ATO also revises GIC interest rates quarterly. May 11, 2023
ATO contacts you as soon after the due date via SMS, messages via mgGov website, letter or phone
ATO will use any future refunds or credits to repay the amounts you owe.
ATO may take stronger action if you are unwilling to work with them to address your debt or repeatedly default on agreed payment plans.
Let’s be clear. The ATO takes debt collection very seriously, as there is substantial revenue at stake. The ATO states:
"Make sure you lodge your activity statements and tax returns on time even if you can't pay by the due date. You'll avoid a penalty for failing to lodge on time and we'll know you're aware of those obligations."
🟠Remission of interest
You may still request for the reduction or remission of your certain interest charges if:
if you are able to define the grounds on which you think the cancellation of your interest fees is fair and reasonable.
If you are able to define any extenuating circumstances that caused the delay of your payment
Describe the circumstances that led to your late payments and any steps you took to settle your obligation.
ATO also looks if you are responsible for the delay or if it is outside your control. It could be due to natural disasters, industrial action, unforeseen collapse of a major debtor, sudden ill health
If your request is approved, you must submit your tax return in the year the forgiven interest was received and include the remitted interest amount as taxable income.
🟠Are there exceptions?
Apart from the tax penalty amnesty scheme rules, if you face extraordinary circumstances like a family crisis, severe illness, or being affected by a natural disaster, your situation will be reviewed individually to determine the most suitable solution for you.
Additional details can be found on the ATO's website.
The ATO's advice to small business owners is clear:
don't ignore the issue, and even if you can't pay the debt right away, get in touch with the ATO or your registered tax advisor to discuss setting up suitable payment plans.
To be exempt from fines, which can be as high as $1,100 per overdue payment, businesses must submit their overdue payments to the ATO by December 31, 2023. If you anticipate difficulty in paying these overdue amounts, the ATO is willing to discuss and arrange a payment plan with you. It's important to note that this amnesty does not cover late superannuation payments.
TIPS
🟠1. Preventing Tax debt
good record keeping and managing cash flow, as these are the keys to avoiding a tax debt.
keeping your GST and income tax payments separate from your other finances
managing your cash flow properly and predict your monthly income and expenses, and
updating your business records frequently.
🟠2. Get into Payment plan
If you're facing challenges in paying your tax debts, the ATO offers the option to set up a payment plan to ease your financial burden. You can typically apply for these payment arrangements online, often with our assistance. This option is generally available for individuals and sole traders with income tax or activity statement debts of $100,000 or less.
However, for larger amounts or more complicated cases, reach out to us, The Lynden Group, and we will help clarify the specific steps and arrangements needed.
The ATO’s message to small business owners is not to stick your head in the sand, and even if you are unable pay the debt immediately, contact the ATO or your registered tax professional for help setting up appropriate payment arrangements.
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