Our corporate advisory firm is seeing the ATO continue to escalate firmer action against small businesses.
Since August 2021, the ATO has issued more than 61,000 intent-to-disclose notices and disclosed the tax debts of more than 36,000 businesses – of which just over 12,000 companies have entered into payment plans.
So, with payment term agreements harder to come by, it’s important not to go in blindly when you pick up the phone to the ATO.
Taking the following steps beforehand gives you the best chance of successfully negotiating payment terms.
Four actions to improve ATO negotiations
Ensure all lodgements are up to date. This includes GST, superannuation, company returns and PAYG – this is a non-negotiable if you want the ATO to even consider a plan.
Clearly articulate your capacity to pay. This can be demonstrated through a stand-alone cashflow forecast or a 3-way integrated financial model which includes a monthly cashflow. These are tools every business should have in place anyway but particularly so when dealing with the ATO.
Demonstrate you have exhausted all working capital, debt and equity options. With working capital, are you focusing on debtor days, are there initiatives to deal with slow moving stock and are creditors being managed appropriately? The ATO wants to know they are not the only creditor being leaned on for support. With debt initiatives, you must demonstrate this has been explored. This could involve working capital facilities (like invoice financing) or borrowing against property to pay back the ATO.
From an equity perspective, the ATO needs to know if shareholder funding has been exhausted or if outside equity could be raised to recapitalise the balance sheet to pay down liability. This may not be optimal for the owner in a distressed scenario, but it should be explored.
Identify why debt has been incurred and what steps are in place to improve business performance. The reason behind incurring the tax liability may have been external factors outside of the business’ control (like economic downturn) or due to internal business decisions (like misjudgement or mismanagement). Whatever the reason, it must be acknowledged and demonstrated that you are taking initiatives to change the situation.
What you can do
Proactive initiatives to improve your business could involve a 4-point plan around:
- Profit & Loss initiatives (margin improvements, rightsizing the business)
- Balance Sheet initiatives (selling non-core assets, shareholder injections)
- Cashflow initiatives (show that you’ve got creditor support)
- Work on your business model (make one or two key changes in strategy) To reduce or delay your debt repayment, you have to stand out from the crowd.
Being succinct and supporting your proposal with up-to-date financial data that answers all the ATO’s information requirements will increase your chances of coming to an agreement.
