Implications of unpaid business tax debt obligations

business tax debt

Getting on top of your business tax debts is a common problem for many Australian businesses.

Tax debt is not one you can ignore and hope it will go away or put it as a low priority; your tax debt is a business compliance priority and one you have to manage.

If they are left unpaid, there can be severe consequences for your business and perhaps you as the business owner or company director.

Unpaid business tax debts must be taken seriously and expose you to legal actions if you decide to leave them unpaid.

Also read: 10 Tips for Managing Business Tax Debt ( ATO )

Consequences of ignoring those nasty tax debts for your business

Disclosure to credit reporting bureaus – yes, this can and will affect your credit rating. So, if you want perhaps to have a small business loan in the future, this unpaid tax debt can come back to bite you.

The ATO tells us they can report your business to a credit authority if it has an Australian business number (ABN) and is not an excluded entity with one or more tax debts. This will happen if at least $100,000 is overdue by more than 90 days. So, if you have a tax debt and it’s nearing the 90-day mark overdue, you have to do something about it and be proactive in communicating with the ATO to arrange payment terms or consider an alternative funding solution.

Debt collection agencies

If you don’t like getting hassled by debt collection agencies, I suggest that you pay your business tax debt, as the ATO will refer your debt to a third party for collection. Harassing phone calls is not what you want, so it’s critical to stay on top of these debts or arrange a repayment schedule.

Penalties and other actions

Suppose your business tax debt accumulates, and you leave it unpaid the ATO may take legal actions against your business and impose fines and penalties. You may even end up bankrupt or declared insolvent by the ATO.

Garnishee notices

Canstar tells us that a garnishee notice is typically issued when a creditor you owe money to have obtained a default judgment from a court or other authority against you, which includes the ATO.

The ATO elaborates on this in their article on their website: ‘we can issue a garnishee notice to a person or business that holds money for you or may hold money for you in the future. This requires them to pay your money directly to us to reduce your debt. We’ll send a copy of the notice to you.

Use of future refunds or credits to pay amounts owed

Let’s say you have a tax refund; the ATO may use this money to repay your current tax debt obligations. And, if you were counting on using that tax refund for other business obligations, you may wind up with cash flow issues. The consequences of these unpaid tax debts have a cascading and flow-on effect that you may not realise as the ATO is persistent in pursuing these debts. They have the resources and staffing to go after you and your business with relentless energy if you owe them money. Eventually, they will win as they always do. You often hear about big companies negotiating with the tax office for settlements. Still, as small to medium-sized businesses, you have to pick your battles. The last thing you want to do is spend your time going head to head with the ATO. It’s exhausting, stressful, can be demoralising and take you away from the one thing you should be concentrating on; your business.

Interest charges

You may hate paying tax and feel that it’s unfair, but the ATO will start to charge you interest on your debt, which will accrue. You can see more about this here at their GIC (general interest charge rates). Save your business capital for your business unless you have a tax repayment strategy that is supported by your financial advisor or accountant. A good rule of thumb is to try not to pay more than you need to!

Added pressure

Having an ATO tax debt hanging around your neck is a horrible feeling. While you may try to ignore it, it’s always there, like a black cloud following you around. You can try to put it at the back of your mind, but don’t think that it will go away on its own. In fact, better to know that it will and can get worse if you leave it unattended. So, unless running a business is not stressful enough on its own, or you are a real adrenaline junkie, make every effort to pay your tax debt on time or as soon as practical.

If you wish to continue trading and get the ATO off your back, we can help you with a tax debt business loan. You will soon have a sense of relief and freedom knowing that you can keep the ATO away for another year and get on with doing what you do best; managing and growing your business.

About the author

Ulrika Lobo

Ulrika Lobo is the lending specialist at Sparrow Loans and has over ten years of experience in the commercial business loan space. Ulrika co-founded Sparrow Loans to provide Australian SMEs with a faster and easier way to access finance. Ulrika is responsible for managing the lending process from underwriting to execution and settlement and post-settlement support.