By Terry Hayes
Sure the tax office still wants what’s due, but it has promised to take a more empathetic approach to small business compliance.
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An SME might find itself in a position where it is having difficulty meeting its tax obligations. This happens in good times as well as bad.
First step is don’t panic – see your accountant or adviser and see what can be worked out. Above all, don’t let time slip by because, while the tax office says it is understanding in these tough times, and will be taking an empathetic approach with small businesses facing difficulties, it has to administer the law as it stands – and tax obligations need to be met.
Nonetheless, there may be a possibility for tax debts to be paid off over time or deferred, but communication is the key.
The tax office regularly holds meetings with its Small Business Consultative Group about current tax issues. Most recently, the tax office has been told that:
- Even businesses struggling in the good times could fail, so when the times get tough, many SMEs will face significant problems.
- Businesses selling luxury items may struggle – this is already proving true.
- Quarterly instalments of tax are based on better times – quarterly instalments can be varied, but only a small margin for error exists before penalties apply if the business gets it wrong. SMEs argue that, with sales often falling, instalment rates for future instalments of tax should be going down, not up.
- Tax agents say that clients regularly come to them after the due date for the tax instalment when the instalment cannot be varied – a reminder of the need for businesses to act quickly when problems arise.
- Consumer discretionary spending will drop off – this if usually the first type of expenditure that falls in difficult or uncertain times.
- Retailers of women’s and men’s wear are being affected.
- International customers are reneging on deals – overseas customers may be doing it tougher than in Australia, and will look for ways to reduce costs.
- Generally speaking, we are seeing the lowest levels of sales and investment for 15 years.
- Small business owners are spending more time worrying about their business.
- Real estate industry turnover is down – auction clearance rates, prices and volume are generally all down.
- Business is saying that first home saver accounts have not yet materialised in larger sales – this has flow-on effects for many SMEs in this sector.
- Some contractors are going “bearish”, laying off sub-contractors.
- The downturn in building and construction could be similar to what happened in the 2000-01 downturn.
- One bright spot is that exporting businesses are being buoyed by the depreciating Australian dollar.
All of this has painted a bleak picture for the tax office of the difficulties facing SMEs.
The Tax Commissioner says he is aware of the above kinds of issues and the general difficulty small businesses are experiencing. He says SMEs can expect the tax office to have a different compliance approach, reflecting the need to be more empathetic with small business. Let’s hope so.
Continued use of external debt collection agencies
It might seem a little incongruous with the tax office’s above espoused empathetic approach to SMEs, but it is continuing to refer certain tax debts to external collection agencies for collection on its behalf. The agencies are bound by Commonwealth privacy and security requirements.
The tax office says that, once a debt has been referred, the agencies generally send an initial collection letter within two working days. Negotiations begin soon afterwards, with either the taxpayer or their agent. If required, follow-up letters are normally sent about 10 days later.
According to the tax office, collection agency officers have direct access to its support team. On most occasions, ATO staff are able to address the query quickly, allowing the discussion to continue and minimising call backs.
As well as payment of the debt, the tax office says collection agency staff can also discuss remission of general interest charge and have the necessary authorisation to remit amounts up to $10,000.
However, while the collection agencies don’t deal with matters such as more complex queries – such as a breakdown of the debt, and applications for release – they remain responsible for collecting the debts in such situations.
The tax office says if tax agents believe release from a debt is an appropriate option for their client, they should advise the collection agency which will then put the case on hold until the outcome of the client’s release application is known.
SMEs in difficulty should keep this in mind when working out with their adviser how to deal with any outstanding tax obligations.
The tax office says it works closely with the agencies and has open lines of communication to ensure any issues are addressed quickly. It also visits agency premises regularly and provides experienced staff to monitor calls and identify training needs.
Collection of tax debts is a necessary part of the tax office’s role, but SMEs should recognise that in the current economic climate, a letter from a debt collector about a tax debt is not necessarily all doom and gloom.
Terry Hayes is the senior tax writer at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.