Dealing with tax debt during Covid 19

Covid 19 has left many businesses, large and small, facing tax debts. Taxes that are due to be paid to the Australian Tax Office that they simply can not pay in full – in time.

The first thing is – DON’T PANIC. The ATO is not interested in punishment. The ATO is surprisingly helpful and very willing to work with you to deal with your debts in a timely way without putting your business or yourself, under a crushing load.

They will help you to set up a payment plan you can afford and there are a range of options on how to structure those payments to suit your circumstances.

Get an accountant or tax agent to help you. Tax agents deal with the ATO every day. They know how the system works, they know your exact situation and they have done this before. They can be depended on to have your best interests to heart.

Make sure you, or your agent, contact the ATO before due dates. A deferment might be possible while you work out how to pay and it shows you are addressing the problem and not trying to dodge it.

There are a number of ways you can structure a payment plan. Sit down with your tax agent and work out what you can afford to pay and how often before you negotiate with the ATO. Given the current very poor business environment (especially in Victoria) due to Covid 19 – you might try for very low payments rising later as business conditions improve.

Covid 19 has meant the ATO is being even more flexible than normal. But don’t take that to mean you can be careless. Always make your payments on time. If there are any problems, contact them at once. You can always re-negotiate a payment plan. But if you default – that is on your record and will affect future negotiations.

Similarly and if you can afford it, you can always make extra payments or payment in full.

Here are some resources on the Australian Taxation Office website that can help you out.

Help with paying

Business viability assessment tool

Payment plan estimator

If your requirements are simple and the debt relatively small – you can set up a payment plan online without talking to anyone. If you are an individual or small trader this can be done online via the ATO portal in MyGov.

For businesses, this can be done via the Business Portal.

Be aware that you might need to pay the General Interest Charge (GIC). This is the interest you pay on the amount of the debt until it is paid in full. When negotiating a payment plan you should explore the possibility of a GIC free payment plan as it could be over 7%.

You can see the current GIC rates here: General interest charge (GIC) rates

The ATO see some tax debts as more serious than others. Superannuation guarantee debts come first. Followed by Pay As You Go Withholding (PAYGW) followed by everything else. In some circumstances they might prefer to have super debts attended to first and to defer other debts.

People do not realise just how much power the ATO has. They can garnish wages. If you don’t know what a “garnishee” is – you wouldn’t be alone. It means the ATO can have your employer take money out of your pay before you get it. They can also approach your bank and take money from there.

If you are a director – they can hold you personally responsible for your company debt. They can also launch legal action and insolvency proceedings.

But once again, do not go into a meltdown about debt. The current conditions are a once in a lifetime event and the ATO really does want to help.

If you are facing a tax debt problem – please feel free to contact us for some free advice. Please call us on (03) 9069 9944.

We are happy to help.