During COVID, the ATO ceased their debt collection and audit activity, but all signs point to 2021 being a year of unleashing for the ATO. In September 2020, the ATO promised a “really soft re-engagement on debt” but with a $1.3 billion shortfall against their revenue target, and $53 billion of debt on their books – the ATO is going to be focussed on getting as much debt recovered as they can.
History suggests the ATO’s prime target will be small businesses and high wealth individuals which make up almost 50 per cent of the $53bn debt. There is a lot at stake – especially for small business directors as the ATO now has extended powers to pursue directors for business tax debt. The scene is set for a rocky 2021 for those who have just survived Covid.
Here’s how to get your books in order, if you’re carrying a tax debt.
Take stock of your tax debt
Use the ATO’s business portal to see what your current debt levels are, or speak with your accountant.
Work out what you can afford to repay
The ATO is being quite generous with payment arrangements at the moment and being proactive will work in your favour. Offer a recurring payment to the ATO to pay your debt off. You will incur interest but this is tax-deductible to you.
Budget for future tax liabilities
Once you enter into a payment arrangement all future liabilities, such as Business Activity Statements and income tax debts, need to be paid in full or on time. So, take that into account when proposing a payment arrangement. Make sure there is enough money left to pay these things.
Look at how your tax liabilities are calculated
Most business owners pay Pay As You Go Instalments, which are calculated on your last lodged tax return. You have the option to accept the ATO figure or vary this amount if your profit isn’t as good as the last lodged year. If profit is down, ask your Accountant to help calculate a varied instalment amount so you don’t have to pay as much. Keep in mind you need to get this right – there are penalties for severely miscalculating, but reducing these instalments will help with cashflow.
Set up a tax and superannuation account and put money away regularly
It is good business practice to put money aside regularly to cover your tax and superannuation obligations. Have a separate online account that is difficult to access and transfer money to this account weekly. This will help to cover your tax obligations when they are due.
Michelle Maynard, Chartered Accountant and Partner, Carbon Group