If you’re a small business and have a tax debt, there are several ways to tackle it and get back to doing what you do best.   

While the tax problems of a struggling small business owner certainly weren’t glamourised in the multi-Oscar winning movie “Everything, Everywhere All At Once”, in real life we can’t expect to be thrown into a multiverse to resolve this predicament.  But one thing’s for sure – it can be solved, and you can go on to thrive.   

According to the ATO Second Commissioner last year, it was estimated that small business was accountable for $12 billion of the estimated $33 billion overall tax gap.

“Generally the ATO will work with and support businesses who want to do the right thing in respect to any outstanding tax debts. Early engagement with the ATO and establishing a payment plan is a key step to working through any taxation obligation issues. This will assist in dealing with the debt whilst it’s still manageable”

- Andrew Ward, Banjo Loans

There are as many reasons for getting behind on taxes as there are businesses. Finances can be overwhelming, and SME owners often juggle so many balls in the air at once, that mistakes can happen. Or it could be illness in the family; the fast-growing business sucking up all available capital; or other events outside the owner’s control.     

According to Olga Koskie, Principal at tax debt specialists Tax Assure, many business owners are embarrassed to reveal that they have tax debt – but they needn’t be.   

“People often feel unique in this situation, but it’s pretty common. It can happen to anyone and is very fixable. What matters is clearing the debt in a smart and effective way, rather than ignoring it and hoping it will go away.”  

Olga works with accountants, brokers, lawyers and financiers to help their small business clients to effectively and successfully address their ATO debt. 

“At the heart of tax debt is people, not numbers. My business is about helping them get out of the jam they’ve found themselves in and get back to focusing on running their business.” 

“Often in business ‘you don't know what you don't know’. It’s a bit like the medical world – there are specialists who can help with particular business problems. It’s important to be able to access the right networks and support, whether it’s negotiating with the ATO, getting into a payment plan, or sourcing a loan for your client to get rid of the tax debt,” says Olga.

“However, the business must act to deal with this. If they’ve got a tax debt but are in a payment arrangement, the ATO considers them compliant. If the debt is overdue and they’re not in a payment plan, they’re considered non-compliant and the ATO will take further action,” she explains.   

Olga sometimes comes up against a misconception that the ATO charges low interest on tax debt.  She points out that the ATO interest rate is 10%, and importantly is compounded daily. It can be very expensive to ignore this debt, and Olga cautions that some SMEs have misguidedly treated it as a kind of de facto ‘loan’ by the ATO.

“People often feel unique in this situation, but it’s pretty common. It can happen to anyone and is very fixable. What matters is clearing the debt in a smart and effective way, rather than ignoring it and hoping it will go away.”

- Olga Koskie, Tax Assure

Instead, it can be far smarter to seek a business loan to reduce or clear tax debt and manage the business’ cashflow more wisely. Many smaller, nimbler lenders are sympathetic to this approach, and have competitive working capital loans that will suit this purpose. 

Another point to bear in mind is if a business owner needs to take out additional finance for another reason (for example a home loan or an important business opportunity) a lender is likely to look more favourably on an existing business loan than outstanding ATO debt.

Olga says that in last few weeks there has been a major uptick in ATO collection activity. Now is the time for SMEs with tax debt to explore their achievable finance options for getting rid of it and the stress, and get back to working smarter, being fulfilled in business and achieving growth plans.

The definition of small business in Australia according to the Australian Bureau of Statistics (ABS) employ fewer than 20 people.