A good reputation with the Tax
Office brings more advantages than it might at first appear. Financiers
also take note of a company’s tax history.
In recent months there has been an increasing
tendency with financiers to condition their finance approvals for
equipment finance and overdraft facilities with a requirement to
obtain a written statement from the borrower’s accountant,
confirming that all taxes and statutory payments including superannuation
contributions are up to date.
The definition of up-to-date relates mainly to
not being behind in payment of a BAS and not being under any formal
arrangement (especially a recent one) with the ATO for repayment
of arrears.
Other business financiers such as those offering
invoice discounting and factoring products are not as stringent,
as it is mostly the tightening of cash flow that causes arrears
and taxes, and factoring companies are in the business of freeing
up cash flow.
The foregoing is a genuine reason in an industry
with such a high capital equipment and debt funding requirement,
to keep the tax man current.
The ATO has recently been quite transparent in
outlining its policy on debt collection to small businesses. This
has been through the general newspapers, letters of information
sent directly to small businesses from the tax office and, of course,
information plastered all over the ATO’s website.
For those of you (the great majority) who pay
taxes on time, you can afford a sly smirk that the ATO is not letting
the naughty ones go by, thus creating an uneven playing field or
competitive market place.
The ATO states it will assess each business or
situation on an individual basis. This has even included a temporary
sanction for businesses to voluntarily get themselves up to date
without penalty. Can’t get fairer than that.
However, on an individual case basis, it means
that if the Tax Office investigates and views a business not viable,
such as insufficient profitability to create cash flows to pay
tax, they would be sure to deal with it appropriately.
Then there are other businesses, that may be hit
by unforeseen circumstances causing a temporary squeeze on cash
flow, that will be able to work out a deal with the Tax Office.
After all, it is not in anyone’s interest to see a viable
business pushed over the edge.
I have witnessed some of my customers who have
been squeezed for cash at BAS time actually contact the ATO and
enter an informal arrangement to take care of the arrears while
keeping their current (or go-forward) position up to date. The Tax
Office seems to take the view (an informal observation) that if
a business has a good history in paying tax, it will stand well
for leniency in setting arrangements.
It goes without saying that a business that has
a poor record of tax payment or is unwilling to meet and maintain
arrangements should expect firmer action being taken.
The Tax Office seems to view insolvency or liquidation
as pretty much a last resort and is usually only instigated against
serial offenders or those who refuse to cooperate.
As a consequence the Tax Office’s powers
have been broadened to extend to some pretty interesting alternatives.
A good one is the garnishee. As you would know, the Tax Office
can find out just about anything about your business, including
the bank accounts the business conducts.This little gem, the garnishee,
can actually be applied to the business bank account to extract
the required amount from routine deposits. Wouldn’t this create
or magnify existing cash fl ow difficulties?
All this, though, is to ensure that viable businesses
be given a chance and nonviable businesses be eradicated to ensure
that those who do the right thing are not disadvantaged within their
marketplace.
I guess the point of this story is not just to
make you aware of the ATO’s position, but also to note that
at a much more everyday level, your financiers would like to ensure
they are lending to businesses that are meeting all of their commitments.
