Tax Debt… If reading these two little words caused a small part of you to die inside don’t worry, you’re not alone. As a small business owner, it is quite likely that you have had, or are currently carrying a tax debt. 60% of all collectible tax is owed by small to medium businesses that figure is growing by about a billion dollars every year, As a result, prompted the driving force behind the significant rule changes that they have been rolled out.
Tax Debt: What has changed
In the past unmanaged company tax debt did not have an impact on your credit file, sadly this is no longer the case. New rules mean that If your business has an outstanding tax debt of $10,000 or above in excess of 90 days that are not on a payment plan or in dispute, it will affect your credit score.
The ATO reasoning behind the new rules is that “Providing transparency of overdue tax debts of businesses supports more informed decision making in the business community and seeks to reduce unfair advantage gained by businesses that do not pay their tax on time. It also encourages businesses to engage with the ATO to manage their tax debts.”
How this affects you
If you have a tax debt and are looking to grow your business or personal portfolio using any kind of financial product, having a tax debt at all can be problematic for you (regardless of if you are meeting your payment commitments or not), there are two main reasons for this.
Reason 1: Because many mainstream lenders will not lend to businesses (or directors of businesses) who currently have any kind of tax debt. This restricts the lenders that you are able to use and your ability to get the best possible deal on your finance.
Reason 2: If you do fall behind and go into default on your payment plan your credit file, in addition, you will have a big black mark on it from the ATO for up to 5 years. Hence this will significantly impact your ability to secure any kind of funds (personal or business) during this time.
What to do
The best way of handling tax debt for most people has been to dump it onto a payment plan and take advantage of the reasonably good terms and rates that the ATO offer. Though this can be a good strategy for some, the new financial landscapes in which we operate means that it may no longer the best strategy for you.
There are a number of different products available that can assist businesses to clear their tax debts with relative speed and ease (you just need to know where to go).
Our friends at MyGrowth Finance are currently offering an obligation free phone consultation to answer any questions you may have about these solutions. They can be contacted here
