« show all articles

How to negotiate with the ATO if you have outstanding debt

How to negotiate with the ATO if you have outstanding debt

Businesses facing cash flow challenges can negotiate with the Australian Taxation Office (ATO) to manage their outstanding debts.

Understandably, the recent economic climate has presented a set of challenges for businesses in managing cash flow.

The importance of proper management of business cash outflows has never been greater, with sales expected to be hampered by COVID-19 restrictions for months to come, and collections from debtors potentially impacted for the foreseeable future.

It is likely that any creditor who is also a business will undertake their own actions to try and recoup money owed to them.

This may involve the shortening of credit terms or a switch to upfront payments in extreme circumstances.

Why negotiate with the ATO?

For any business, payments to the ATO represent a large proportion of regular outgoings.

Thankfully, the tax office is often willing and able to enter into negotiations in good faith to manage outstanding debts.

This is an important consideration during this difficult period, with many businesses unable to pay all taxes when they are due.

Furthermore, the ATO would prefer businesses to be upfront and engage early with them if they suspect that they will encounter difficulties in making payments.

An upfront approach is preferable to leaving debts to grow, which may risk the tax office deploying recovery action via garnishee notices on business bank accounts, the director penalty notice regime, or being hit with a fine.

Payment arrangements with the ATO

When it comes to an outstanding debt, the fundamental principle of any payment arrangement set up with the ATO is that it needs to be sustainable.

A good arrangement is one that ensures the business can pay the weekly, fortnightly or monthly instalments when they are due, but should also allow enough surplus business cash flow to pay for future obligations by their due dates.

To establish a payment arrangement, the ATO will often require an upfront payment as a sign of good faith.

This can range from 10 per cent to 40 per cent of the outstanding debt amount, depending on the circumstances of the business.

Likewise, the standard repayment term can range from six months to two years.

How to approach negotiations with the ATO

The skill in obtaining assistance from the tax office is being able to succinctly explain why the business cannot make the payment.

A business owner has enough stress dealing with the day-to-day survival of their business, so in many circumstances, it is better to have a trusted advisor to negotiate on their behalf.

Due to the COVID-19 pandemic, the ATO has offered interest-free payment arrangements to help businesses already doing it tough.

The tax office is running a number of programs, including one that helps businesses that have been demonstrably impacted by COVID-19 and have accrued interest since January 23, 2020.

The ATO is likely to remit the interest from that period on application, so long as the appropriate facts can be established.

In the event that interest or penalties are charged, our staff at LDB have experience with preparing submissions on behalf of clients, which can often result in the remission of the amounts.

The ATO can regularly ask for additional information such as profit and loss statements, averages of income and expenses, and details on bank loans or overdrafts.

Need help negotiating with the ATO?

LDB’s staff are experienced in direct negotiations with the ATO on behalf of our clients and establishing working relationships with debt management teams.

The key to negotiating with the ATO is knowing what assistance programs are available in order to find an acceptable solution for all parties.

If you require any assistance in managing your business cash flow or negotiating with the ATO, please get in touch by calling (03) 9875 2900 or send us your details via the contact form below.

« more articles