I’ve worked with about 1000 business owners with cash flow problems, and there’s a common trend I see. Tax goes unpaid, but it can be brought up to date later.
The thinking is often that the ATO is like a low-interest lender that doesn’t require an application. The General Interest Charge sits at around 12 per cent compounding daily, compared to high-interest loans that can run between 20 to 50 per cent, or credit cards just above 20 per cent. On the surface, it doesn’t seem like the worst option.
But the issue is personal liability, compliance history and the ATO’s capability to recoup the debt.
Let’s talk about personal liability. There are business tax debts, unlike any other sort of business debt, the liability of which is on the director(s). If a company has debts for PAYG, superannuation, or GST, those debts are the responsibility of the company director(s). In simple terms, they stay with the director for life.
Now, compliance history. A record of unpaid tax and late lodgements can reduce flexibility in negotiations of tax debt remissions or payment arrangements. When we go into discussions with the ATO for a payment plan, a restructure, or a remission request, the first thing they look at is past behaviour. If there’s a pattern of non-compliance, wiggle room narrows.
Lastly, the ATO can take money directly from your bank account. Garnishee notices allow the ATO to take money directly from bank accounts. That can happen at any time that suits
them.
In short, using tax money to fund the next opportunity might feel practical in the moment, but the long-term risk can far outweigh the short-term benefit.