ATO ‘debtor crisis’ to emerge in Sept

New research indicates that the Government might face a wave of ‘tax debtors’ within the Australian business community after its cash stimuli and wage subsidies end in September.

This is because, before the nationwide shutdown―when the economy was fairly healthy―25 per cent of businesses could not find the cash to pay their tax and GST on time.

The findings come from an independent survey commissioned by money.com.au, an online financial information platform for businesses and consumers, of 261 business owners―88 per cent of which are SMEs.

The results reveal that one in four (25 per cent) businesses overall―and 21 per cent of SMEs―were unable to pay their GST and tax in cash, in full, in 2019. With the country in its first recession in 29 years and small businesses likely to be hit the hardest, will the business sector meet its tax obligations if longstanding cash flow issues were already causing strife?

Among the quarter of businesses overall who were unable to pay their full GST and tax bills in cash every time in FY2019, 64 per cent―and 83 per cent of SMEs―mostly paid it through a repayment plan with the ATO or on credit card. Sixty-five (65) per cent went on a payment plan or paid via credit card at least twice in 2019, and 16 per cent did so every time.

The survey also reveals that 27 per cent of businesses overall and 10 per cent of micro businesses secured financing at least once in order to pay their GST and taxes in FY2019.

Insufficient cash flow can cripple businesses and cause financial difficulties when it comes to paying tax, particularly among small businesses which have greater credit constraints and do not have access to large cash resources.

Three in four (77 per cent) businesses cited cash flow issues as the major reason they were required to go on payment plans with the ATO or make payments via credit. Specifically, cash flow issues due to long-outstanding customer or client payments, according to 43 per cent of businesses overall and 29 per cent of SMEs. A further 21 per cent said insufficient cash flow arose because the business spent beyond its means.

“The challenge of managing good cash flow becomes more apparent when BAS and tax time comes,” money.com.au spokesperson and licensed financial advisor, Helen Baker, says.

“The fact that a significant proportion of businesses don’t have the cash to pay for their ATO bills in full each time suggests that businesses are not setting aside money throughout the year for these payments. Come bill time, businesses are required to turn to payment plans or credit options.

“Some businesses may also find that what they have calculated and set aside for their tax may have been underestimated, so there are calculating discrepancies in what is actually owed. In a perfect world, money would be parked each month, however, businesses are often using their funds to put back into the business. 

With many businesses struggling to stay afloat over the last few months and as we enter our first recession in nearly three decades, businesses need more leniency from the ATO than ever before. The fact that nearly a third of cash flow issues derive from unpaid invoices is concerning, given that many businesses are going under, adds Baker.

“The worst could be yet to come for those businesses that have recently undertaken large jobs and bill in arrears. If this problem is experienced by a significant proportion of businesses, it could cause a chain reaction of delayed payments throughout the business sector. Business financing may be a suitable option for businesses struggling with cash flow. One option to consider for loans is to visit money.com.au, which can help businesses of all sizes get access to a range of loans to help cover shortfalls, unexpected expenses and pay tax.”