13 Oct 2011 | Small Business
In this two speed economy there are many small businesses doing it tough. The federal government is also finding its financial situation hard going. When small businesses have cash flow problems their survival tactic is to slow down payments. When the government is in a similar position they increase tax collections.
Increasing cash flow by increasing taxes does not work when an economy is on the brink of an economic downturn. The alternative for the government is to have the Australian Taxation Office delay paying refunds, under the pretext of increased audit activity, and to pursue taxpayers with more vigour that have outstanding tax debts.
In the past the job of collecting outstanding taxes has been done in most cases with firmness coupled with fairness. With the Government getting more desperate to balance the budget the actions of the ATO is becoming heavier handed.
A directive has been issued to ATO staff that allows them little room for leniency with taxpayers in financial difficulty. Depending on the ATO staff member this can result in threatening a taxpayer with bankruptcy rather than accept a payment plan that does not meet the policy guidelines.
Despite this attitude taxpayers that show they are making all possible attempts to repay the debt as quickly as possible will receive a better response from the ATO. One of the biggest mistakes a small business owner can make is to think they can tough out their cash flow problems and keep the ATO in the dark.
In a recent speech the Commissioner of Taxation, Michael D’Ascenzo, said, “One of the most important things a business can do – while managing the many things on its plate – is to keep its financial situation in front of mind. This includes their current and forward tax obligations. If an operator thinks things might be slipping or there could be trouble ahead, they should call us straight away”.
Often the first financial commitment that cash strapped businesses ignore are the payments administered by the ATO. These payments include GST, PAYG withholding deductions from employees, and the nine per cent compulsory superannuation contributions.
With the increasing harder line being taken by the ATO towards outstanding tax debts the continued existence of the business, and also the personal assets of owners, can be put at risk. There is legislation currently in the process of being drafted that will mean directors can be held personally liable for debts owed by a company to the tax office.
It is therefore vitally important when a business gets into cash flow problems that the owners seek help to find ways to fix the problems. This will usually take the form of a detailed and accurate cash flow budget that shows on a monthly basis where the cash flow in is coming from and where it will be spent. In addition it is important that the ATO be contacted before a payment deadline is missed so a payment plan can be agreed to.
Questions on small business tax or other issues can be emailed to firstname.lastname@example.org
Tax for small business, a survival guide, by Max Newnham is available in bookstores.