Savvy small business owners have worked out that the easiest form of credit they can get, is from not paying their Australian Taxation Office (ATO) debts under tax debt transparency law. Although this is not necessarily a ‘cheap’ source of business funding – it is a relatively low risk one. There is no application process, no need to provide bricks and mortar security, no lender putting you through the approval “ringer” and most importantly, only the ATO knows about the debt!
Why? Because currently, the ATO does not disclose the tax debt information of small businesses to registered credit reporting agencies. This has meant that even businesses with a large tax debt have been able to obtain credit without the provider is aware that the business they are about to advance credit to may not be financially sound.
From July 1st, 2018 this is all about to change. In the midyear update, the Federal Government announced that the ATO will disclose overdue small business tax debt information with registered credit reporting agencies.
Why is this happening?
You may be wondering why this is happening. Well, providing transparency of overdue tax debt supports informed decision making in the business community. In addition, it seeks to reduce unfair advantage gained by businesses that do not pay their tax on time.
Not only will it provide transparency and assist with decision-making, it also encourages business owners to engage with the ATO to begin managing their tax debts, rather than just continuing to bury their heads in the sand.
What does this mean for you?
This means that credit providers and suppliers are far more likely to decline credit applications based on any overdue tax debt.
So, if your small business relies heavily on credit, this change will undoubtedly have significant implications for you and your business!
Who will it impact?
If you have an overdue tax debt and are regularly engaging with the ATO to manage it (i.e. you have a regular payment plan in place), then you probably do not need to worry! Providing you stay on top of your payment plan, this change will not directly impact you.
The Tax Debt Transparency Law will directly impact the following businesses:
- Businesses with an Australian Business Number (ABN)
- Businesses with a tax debt of at least $10,000 and more than 90 days overdue
- Businesses not effectively engaging with the ATO to manage their debt
How will a Virtual CFO help?
If you fall into one of the above categories then managing your tax debt, by getting assistance with your cash flow management, is something you need to get on top of. And fast!
With a Virtual CFO, you do not need to worry about trying to handle it all yourself. A Virtual CFO can help you take the necessary steps to begin effectively managing your tax debt. Remember, when you manage your debt effectively and a structured plan is in place, you will not need to worry – isn’t that a relief?
Even if you are a brand-new business and do not have a tax debt, a Virtual CFO can help you to develop a cash flow to ensure you stay on top your ATO obligations. This will prepare you for any unexpected tax debt down the track.
Using modern financial analysis tools, a Virtual CFO will assist you to manage the possible implications of the new Tax Debt Transparency law on your business. A Virtual CFO services can be very cost-effective while giving you the benefit of far greater opportunities for future growth.
So, what are you waiting for? Do not leave it until the last minute!
About David Officen
David is the Founder and Managing Director of proCFO.
David combines an accounting and consulting background with commercial experience both as a manager for large commercial businesses and as the owner of private and family businesses.