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ATO “Bank” or not?

Anyone in business would agree that with the current economic climate, many business owners/ managers are suffering from a never-ending headache, trying to manage their cash flows.

Having tight debtor collection policies in place is a fantastic way to start, however unless you have solid cash reserves, you may find yourself juggling payments to your creditors at times.

In these circumstances, we see many business owners enter into payment plans for their tax obligations with the ATO (Australian Tax Office).

We ask whether this is a good idea and what other options there may be.

Firstly, the benefits of using the ATO as your banker:

  • It is relatively easy to arrange
  • It is unsecured lending
  • Interest rates are reasonable and they offer interest-free plans over 12-months for small businesses that meet the ATO’s criteria. For more information visit the ATO website

Now for the negatives:

  • If you have an ATO payment plan, failure to lodge and pay your BAS by the due date will result in having to organise a new payment plan, as the ATO will consider your original agreement to be in default
  • As of the 1st of July 2017, the ATO has the ability to disclose details of taxpayers with outstanding tax debts to credit reporting agencies, resulting in businesses finding it extremely difficult to obtain credit from suppliers or financiers
  • Whilst the ATO are generally very accommodating if you find yourself in this situation, most banks will treat this as an event of default which could involve a review of your facilities
  • In addition, most banks/lenders won’t provide facilities to clients who have tax debt, whether or not this is under a payment arrangement

So, what are the other options?

The good news is that there are specialist lenders who will finance tax liabilities.

Whilst they generally do charge a higher interest rate than the ATO, borrowing from a commercial lender will enable you to continue to access credit from traditional sources if you need to, subject of course to meeting the lenders usual credit requirements.

If this article has raised any questions you wish to discuss, please contact your Ledge Finance Executive directly, or click here to contact us and we will be pleased to assist in any way we can.