Episode 86: Managing Tax Debt
Mar 4, 2024
In this episode, Sarah and Trudi discuss the challenges of managing tax debt for small businesses. They emphasize the importance of changing the mindset around tax payments, putting aside GST and PAYG withholding, and quoting prices inclusively. They also highlight the impact of late tax returns and the significance of PAYG income tax installments. The hosts discuss negotiation options with the ATO, the availability of payment plans, and the potential credit impact. They caution against relying on finance options and suggest seeking specialist help when needed. The episode concludes with tips for preventing tax debt.
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Just two industry experts (and guests) having a friendly chat and sharing our knowledge. We aim to raise your knowledge base and dis-spell any myths surrounding finance. tax and a range of other financial topics.
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DISCLAIMER- The information and material in this podcast, and supplementary and associated information available, is for general information only. It should not be taken as constituting professional advice from the podcast owners, and we recommend you seek independent suitable advice that is specific to your unique circumstances.
Podcast Transcript Available Here
Duration: 27:15
Sarah (00:11.851)Good morning Trudi, it'll be good afternoon when this podcast drops, because we drop at 2pm, but nonetheless it's a morning when we're recording today.
Trudi Cowan (00:13.486)
Good morning.
Hahaha.
Trudi Cowan (00:20.974)
It certainly is. Certainly is. Good. Glad that the hot day is over and we're having a much cooler day today.
Sarah (00:22.923)
How are you?
in.
Sarah (00:30.059)
for Melbourne that is. For those of you listening that are not in Melbourne where the weather is four seasons in one day. Up where I live, it's just bloody hot all the time at the moment. So we're all hanging out for autumn to actually kick in and give us just a little bit of relief for life there. This is episode six of season five. We are plugging along very quickly, which is fantastic. And today we are talking about managing your tax debt.
Trudi Cowan (00:36.782)
Thank you.
Hahaha!
Trudi Cowan (00:50.702)
Yes.
Trudi Cowan (00:58.51)
Yes, something that's pretty common cash flow issue for a lot of small businesses. Anyone who spends any time at all in any form of a business forum online probably hears people commenting on how do I deal with my JST or my PAYG and my bills come in and I can't pay, what do I do? Yeah, really, really common topics and something that we...
Sarah (01:14.991)
continuously or how do I arrange a payment plan? Yeah, all of those little things.
Trudi Cowan (01:26.51)
speak to our clients a lot about and ways in which we can further improve it. Yeah.
Sarah (01:30.667)
Yeah, like cash cash flow full cash flow full stop is a massive problem. But tax debt or statutory requirements, so BAS and tax, because they're not technically the same thing, I suppose. You know, they all have an impact and a lot of people don't allocate for that cost to go back out. I mean, I don't like paying it. I'm going to put my hand up and be like.
Trudi Cowan (01:43.79)
Yeah.
Trudi Cowan (01:50.478)
Yeah. Yeah.
No, no, no.
Sarah (01:55.947)
No one likes paying it guys, let's just put that out there right from the get go. I certainly don't. Trudy is fully aware of me going, do really? Like, do it every time. Is there a way for me to reduce this? But...
Trudi Cowan (02:01.166)
Not.
I'm
Trudi Cowan (02:07.982)
Yeah, that's a very common question that I get. How can I pay less tax? But I think some of it is also a mindset and how you actually look at what you are paying, right? And the first one that I often will go to my clients about is GST. GST was never your money. The way the GST system is set up is that business are actually basically acting as a collection agency for the ATO, right?
Sarah (02:12.969)
Mm -hmm.
Sarah (02:18.219)
100%.
Sarah (02:26.347)
Yeah.
No.
Sarah (02:36.171)
They are. And it was designed that way, right? Ridiculous, but that's how it was designed. Yeah.
Trudi Cowan (02:38.528)
It was designed that way. You should be pricing your product or your service in such a way that you're making your profit and then you're adding GST on top.
Sarah (02:49.515)
But then you should be advertising that to your consumer or to another business as an inclusive price. And we're going to get into that in a moment because it's a bloody bugbear of mine that's been coming up for the last six months. I hate it. People that do not. Okay, yeah.
Trudi Cowan (02:50.51)
Right? And then we need to...
Trudi Cowan (02:56.814)
Yeah, right.
Yeah, it is a bad bet. Let's get into it now. To be clear, you need to quote, in Australia, you're required to quote your prices to consumers inclusive of GST. To businesses, you don't have to quote them inclusive of GST, but if you don't specify whether it's included or not, then the purchaser can assume that the price you've quoted is inclusive. So if you don't say $100,
Sarah (03:21.963)
Mm -hmm.
Sarah (03:28.299)
Correct.
Trudi Cowan (03:29.454)
plus JST, then it's assumed that the 100 is already inclusive.
Sarah (03:31.275)
Mm -hmm.
Furthermore, those GST regulations go on to say that if the business is a sole trader, the requirement for you is to quote to them as if they were a consumer, which means it's inclusive. So getting in the habit of quoting inclusively is actually the safest situation that you can put yourself in as a business to ensure that you're not actually in breach of regulations and can't be reported to ASIC.
Trudi Cowan (03:45.23)
Yep. Yeah. So really, best practice is here.
Trudi Cowan (03:59.662)
Yeah, and I mean what I actually do is I typically quote inclusive and then still say inclusive of GST. So there is 100 % certainty that GST is already included in this prize.
Sarah (04:07.851)
So do I. Yeah, yeah, yeah. All of my prices, if you go to my website or anything, if I ever give you, if you ask me for a specialized quote, they will all be inclusive prices. Your invoice will arrive as an inclusive price. So when I set up the invoice, I put the price in. So I've priced my stuff knowing that I've got to take the GST out of it.
Trudi Cowan (04:16.46)
Yeah.
Trudi Cowan (04:24.11)
Yeah.
Trudi Cowan (04:30.926)
Yeah. So the thing to remember, because you're acting as a collection agency for the ATO or for the government, what you really should be doing is when you receive that GST, putting it aside, because it's not your money to be using to cash flow your business. Right. And that's where the mindset comes in. This is not my money. So let's put it aside so that I can then pay it on to the person that it needs to go to.
Sarah (04:37.387)
Hmm?
Sarah (04:43.563)
Yes, it's not yours.
Sarah (04:48.363)
Yeah, however years ago, years ago.
Sarah (04:55.143)
Years and years ago, I had someone I know, with a sibling of mine, let's be real. And he's very intelligent, very smart guy, actually has a master's in tax and was saying, yeah, but Sarah, the G, I was like, the GST is not your money. He's like, yeah, but I use it for cash flow. In my, in his head, he would deduct on everything he did, like the input tax credit, so the GST that he was collecting versus deducting what his material cost was, so his input tax credit.
and he was automatically calculating that he was immediately therefore getting a refund of Y and therefore that Y was his money to spend. And I was like, no, you're not wrong technically, but in practicality, you might be doing that. Your business partners aren't doing that. I guarantee you. So.
Trudi Cowan (05:33.23)
just never ends up working.
And it's too tempting to then spend some of that money and you can end up in situations, I had a client who they basically buy product for their client as part of the service and basically on -bill that product. But if you don't pay your supplier in the same quarter as you receive the income from your client, those GSC credits aren't offsetting each other.
Sarah (05:42.717)
Yep.
Sarah (05:57.739)
yes nope
Trudi Cowan (06:01.422)
So it doesn't always end up working nicely. So the safest way to go is just, I've received this GST, I'm gonna put it aside. Put it in a separate bank account. Yeah? And then the next one, which I also think is a mindset one, is the PAYG withholding on wages. And I have a lot of people that come up with, why is it so high? Think about it this way. If you weren't withholding that tax and paying it to the ATO, you'd be paying that money to your employee.
Sarah (06:04.043)
new.
Sarah (06:08.331)
Yeah, it's not your money. It's not your money.
Sarah (06:16.331)
Yeah. Not your money either.
Sarah (06:28.139)
to your employee. It's not your money. It's their money.
Trudi Cowan (06:30.286)
So either way, you're still paying that expense. It's just, who are you paying it to?
Sarah (06:35.787)
So as an example, and I know I'm putting you on the spot here, but if someone earned $100 ,000, do you happen to know off the top of your head roughly how much their tax would be? Can you quickly calculate that so we can share with our audience? I did say I was pretty.
Trudi Cowan (06:38.86)
Yeah.
Trudi Cowan (06:48.11)
The pair -wide system works on all these sorts of tables and things, so it really depends on, you know, monthly, weekly, but let's just go a rough number, right? Let's just go for the call at 30%, right? So if they're earning 100 ,000 over the year, they're paying, you're withholding 30 ,000, right, in tax?
Sarah (06:53.355)
Yes, the individual dollar amount that...
Sarah (07:04.715)
Mm -hmm.
Sarah (07:09.067)
$30 ,000. $30 ,000. Yeah, why is it so high? Because it's not your money. It's irrelevant.
Trudi Cowan (07:13.998)
It's not your money. So that's a two and a half thousand dollar bill each month, right? But if this system wasn't in place requiring you to withhold that, you're still paying your employee a hundred thousand dollars. You would just be paying that money to your employee probably on a more regular basis than what you're paying that tax to the ATO. So again, it comes back to the mindset of what are we actually paying and why are we paying it?
Sarah (07:18.377)
Yeah.
Sarah (07:24.619)
It's not your money.
Sarah (07:29.259)
basis than the requirement. And I suppose it's in
Sarah (07:36.587)
And it's important to note there that the ATO does actually give you flexibility if you are better off as a business. And I think some of this is actually coming into law that your PAYG needs to be paid monthly just to help with your cashflow.
Trudi Cowan (07:49.934)
So it's actually, if you are withholding more than 25 ,000 a year, you should be doing a POYG on a monthly basis. So that's really more than one good income and you should be doing it on a monthly basis.
Sarah (07:57.291)
Wow, there you go, right? And you think about it, you've got...
I was going to say that's what we've just looked at 100 ,000 as a rough estimate of about 30k, 30%. So if you're paying around 190 to 100k in wages, then you should be paying your PYJ monthly. I mean, I've paid mine monthly for years and I love it.
Trudi Cowan (08:07.15)
Thank you.
Trudi Cowan (08:13.998)
Yeah. The reality is the ATO doesn't always realise that straight away and sometimes it takes them a while to switch you over to a monthly basis.
Sarah (08:25.451)
Yeah, I have had clients that are being forced across and they don't like it because it impacts their cash flow, but it's not their money.
Trudi Cowan (08:27.95)
Right? Yeah, but you can elect. So if you were wanting to go on a monthly basis, your accountant can actually switch that over before you say that you are on a monthly basis. Right? And really, you can do that for GST as well. So if it helps your cash flow and your mindset and your payment systems to pay your GST monthly, you can actually elect to report your GST on a monthly basis as well. Obviously, it means more BAS reporting because you're going to have to do it every month rather than every quarter.
Sarah (08:37.003)
Yeah, and do it straight away. And that's important to know.
Mm -hmm.
Yep.
Sarah (08:54.613)
Mm -hmm.
Trudi Cowan (08:56.27)
But if it helps the cashflow for some businesses that I work with, that actually really helps them to do it on that more regular basis. And you would be up to date on a monthly basis anyway, so it shouldn't actually be that big.
Sarah (09:00.267)
Absolutely.
Sarah (09:04.427)
I agree. Get it done. Get it done. Yes. So.
Some of the issues are around also when people lodge their tax returns and then how that debt then blows out. So we recently had a client that probably needed a new accountant, which they now have, her name is Trudy Cowan, but didn't do their tax return for 2022, I think it was until now. Was it 2022 or 2023? Anyway.
Trudi Cowan (09:29.87)
I'm going to go ahead and close the video.
Sarah (09:41.611)
They were behind in doing their tax a little bit late as in they were not, it's not due yet but because they haven't done it immediately they then got whacked with a $130 ,000 tax bill because they'd made a bucket ton of profit but that then impacted their withholding installment amount because it was based on the new tax return. So...
Trudi Cowan (10:00.524)
Mmm.
Sarah (10:04.779)
Not doing your tax churning and leaving your tax returns until as late as you possibly can also can seriously impact your ability to manage your tax debt because it then impacts everything else.
Trudi Cowan (10:10.958)
Yeah.
Trudi Cowan (10:14.688)
And look, this is an installment that actually a lot of people find really confusing and don't really understand. And what we're talking about is a PAYOID income tax installment. Now, this is something the ATO requires you to pay if you are a business or if you're a sole trader that has some business income, or even if you're an individual that has a lot of investment income, they can require you to make an income tax installment on a quarterly basis.
Sarah (10:23.755)
Yes.
Sarah (10:28.299)
Hmm.
Sarah (10:34.537)
Yes.
Trudi Cowan (10:37.902)
What confuses people though is that the installment amount the ATO requires you to pay is based on your last lodged tax return. So as Sarah was saying, if you leave your tax return really late to lodge, then the ATO is only updating your installment quite late into the next financial year. As a business, particularly in the early stages of business, I would expect that your revenue and your profits are increasing year on year. Therefore, if we're basing it on the tax return two years ago,
Sarah (11:01.579)
Yes.
Trudi Cowan (11:05.134)
There's a big difference between the profit potentially that you made in that year and what you're making this year, which means the installments are not going to be enough to cover your tax when you do your return. And you're going to consistently end up with these large bills every time you tap a return.
Sarah (11:13.067)
Yeah. And then you're going to get a big bill, a big bill, which you've got no money to pay, which now if you've done that for this and you've done something similar for your bars, left your bars laid and you delayed your withholding tax, you can end up with huge quarterly installments that you've got no cash to pay. And if your business has declined, it was this.
Trudi Cowan (11:20.876)
Hmm.
Trudi Cowan (11:33.774)
Yeah. And what the ATO sometimes does now is they make you do a catch -up instalment. So if you don't lodge a return till March, on the next one they'll say, well, for this financial year, you should have paid instalments of X, but you've only paid this tiny amount. So therefore we're going to make this fourth instalment massive to catch up for what you should have actually paid.
Sarah (11:42.441)
Mm -hmm. Yeah.
Sarah (11:49.099)
Yeah.
Sarah (11:53.835)
And if your business has decreased, so you're not growing, you've suddenly pushed yourself into insolvency. Just in one simple thing, because you cannot meet your debts when they fold you, and these ones are statutory debts. So...
Trudi Cowan (11:57.934)
Come on.
Trudi Cowan (12:02.158)
Yeah. Yeah.
Trudi Cowan (12:09.646)
Yeah. Now look, if your business has declined, you can vary those installments and you can actually voluntarily pay more if you wanted to, if that helps your cash flow. So there are all things that are important to have your conversations in your account about when these installments come in about, is there something I can do about these? Like my business has changed the way things are happening. I don't need the installments as much. We've restructured the business. I don't need them at all. We can work with that and make variations and changes.
Sarah (12:13.707)
Yes, you can.
Sarah (12:18.475)
Hmm.
Trudi Cowan (12:36.43)
to try and help those systems as well. But it's important to speak to your accountant about it because once the quarter ticks over, it's a lot more difficult to then vary.
Sarah (12:42.443)
You gotta do it before they fall due because once that happens like Trudy just said you're out of time to negotiate and that leads into payment plans. Some people know that payment plans are available, some people don't know that payment plans are available but a few years ago they changed the ruling on the payment plans and if you've got one in place it's quite difficult to get a second one, correct?
Trudi Cowan (12:45.74)
Yeah.
Trudi Cowan (12:54.582)
Mmm.
Trudi Cowan (13:08.194)
If you've got one in place, it's more difficult to get another one because when you agree to a payment plan, there's a couple of things that you're agreeing to as conditions of that plan. And they include that all future lodgements will be lodged on time and all future payments will be made on time. So if you're trying to get another one, that means you're not actually meeting that obligation of making your payment on time. So the ATO can be more difficult around renegotiating that payment plan.
Sarah (13:14.507)
Mm -hmm.
Yes.
Sarah (13:21.835)
Mm -hmm. Made on time, yeah.
Sarah (13:35.947)
And to be fair, even though I don't like the ATO, I can't say it enough, I don't like paying my taxes, specifically because they don't seem to be doing what we're paying them for currently. That's a whole different podcast topic, but, but the reality is, is if I was the ATO, I would be doing the same thing. Because, yeah. Yeah.
Trudi Cowan (13:45.71)
That's a whole different podcast, not even a whole different podcast.
You owe, at the end of the day, you owe them a debt. The debt has a due date and if you can't meet it by that date, they're not actually obliged to give you a payment plan. That is a concession that they provide to assist people, right? But it's important to know that they're available. So if you are struggling with a particular amount that you need to pay, it is worthwhile getting on that front foot and getting a payment plan in place. And a couple of things to note.
Sarah (14:06.571)
They owe you nothing.
Trudi Cowan (14:21.582)
They usually require a 10 to 20 % upfront payment. Yep. As the first instalment. And they typically don't like the payment plans going over probably about 18 months to two years. It can happen, but requires a lot of very heavy negotiating with the ATO to get an extent over that. Because the point is they want the taxes paid. Yeah, there's very much going to be extenuating.
Sarah (14:25.579)
Contribution, okay. Yeah. Mm -hmm.
Sarah (14:40.811)
Yeah, there's got to be extenuating circumstances. Yeah, there's got to be extenuating circumstances to justify a blowout of debt across that. Because again, put yourself in the position of the ATO. This business hasn't met its obligations as they're fallen due. They want an extension on payment terms. What guarantee are we if they've already demonstrated they can't meet their commitments that they're going to be able to commit, move them forward?
Trudi Cowan (15:03.66)
Yeah.
yet. And it is also important to note that you can, you know, if you don't make the payments as you agreed to on a payment plan, that's considered a default. And you do enough defaults and the ATO is perfectly entitled to report that to credit agencies. Now look, they normally give you warnings that they're going to do it, but it's important to know that that can actually happen. So defaulting on an ATO payment plan can also impact on your credit.
Sarah (15:13.483)
Yes, it is a default.
Sarah (15:18.987)
Exactly, because they are a list security creditor.
Sarah (15:27.339)
And if your credit score drops, you can't get finance. It's that simple, especially in business, but definitely in personal life too. In business, the credit score seems to be more relevant just in general lending than, and a credit score that drops below 600 is a problem.
Trudi Cowan (15:32.172)
Mmm.
Trudi Cowan (15:36.224)
Yeah, no. Yeah.
Trudi Cowan (15:41.036)
Mm.
Trudi Cowan (15:45.454)
Yeah. Now look, finance is another option. If you haven't got payment plans, the next question I have a lot of clients ask is, well, can I get a loan? Well, that's what I'm gonna ask you, Sarah. Is it an option? I hear it is actually not a great option and quite difficult to get.
Sarah (15:50.571)
Is it? Is it an option?
Sarah (16:00.207)
Again, if you're in business, if you take the position of the credit analyst, and I said this to someone recently, if you've got tax debt and you haven't met your obligations as they've fallen due, why would I, as the credit or the lender, give you more money? Look, you've demonstrated to me already that you haven't paid the bills, right? And you haven't done any cash flow forecasting, you haven't done a business plan.
Trudi Cowan (16:19.606)
Capnet.
Sarah (16:26.411)
You haven't been able to meet your obligations. You're effectively trading insolvently. Why would I give you more money? So people's response to that is, but I can pay it back monthly. Well, then why weren't you putting it aside monthly in the first place? Right. And from a...
Trudi Cowan (16:39.406)
And why aren't you just getting a payment plan with the ATO then?
Sarah (16:43.403)
Exactly. So usually when people come to me for money, it's because they've already got a payment plan that they haven't been meeting. And then they've got more tax debt because they've continued to trade because they need to make money, but they haven't taken aside the GST, the PAYG, any potential income tax because they're not doing the forecasting and the business planning and the cashflow planning that they should be doing. So they don't know how much that is. And then they may have, I'm going to say, a reactive accountant, which is not you, Trude, but a lot of
clients have reactive accountants when after the quarter is done or after the end of the financial year is done, the problem is there and it can't be mitigated because there's been no tax planning done. So we can't solve the problem. And now you've got a debt, you've got a debt to the ATO, you've got another bill coming, you've got no cash to pay any of them. And even if you could get a second payment plan, you don't have the 20 % to put on the payment plan as the upfront contribution. You're screwed. Just look, you know, spade is a spade. And if it's this far down the line, it's too late to get finance.
Trudi Cowan (17:22.862)
and
Sarah (17:42.187)
One thing for me when I'm bound by a code of ethics to keep my license, we have to do ethics training regularly and I need to ensure that any of the lending I do is also in your best interest even though at the time you may feel that it's not in your best interest because you've decided you want a solution. But if all I am doing is kicking the can down the road in terms of dragging out, it's not in your best interest. Sure, I could make a commission on the deal, I could charge you a fee.
Trudi Cowan (18:05.07)
Yeah, it's not really in someone's interest, is it?
Sarah (18:11.851)
But at the end of the day, all I am doing is pushing out your insolvency and you should be talking to a debt restructuring practitioner immediately. So can you get finance for this type of stuff? Yes, you can. It is usually very expensive if there is a lender to do it because the lenders that will touch it are the ones that are the higher risk lenders. So they're like your subprimes and they will do it at a much, much higher interest rate. And
Unsecured business finance, as we've talked about previously, already sits between 15 and 28%. And that's the finance that I would consider reasonable. Anything of that higher nature of interest rate needs to have an exit strategy when you go into it. And again, ethically, I'm not going to put you into a loan that I can't see you A, paying off, but B, prevent the problem from happening again. And that is also
Trudi Cowan (18:59.918)
Yeah, exactly right.
Sarah (19:02.123)
why lenders require business plans and cash flow forecasts because they are doing exactly the same thing. So I'm not going to do anything that's going to put you into that position. They're also not going to do it ethically, but they're not certain even though it's an unregulated industry, it's not regulated like the consumer space. They're not going to do anything that puts them on a current affair. They're not going to do anything that gets them dragged into court for unconscionable contracts. Effectively, they're watching their bottom line and they've got to be able to make money on it too. So.
Yes, you can get finance. Should you? No. No, no, no.
Trudi Cowan (19:33.486)
And on that point as well, for anyone that's tempted to say, well, I'll just put it on my credit card. Think about what is the interest rate on your credit card versus the ATO's interest rate is currently sitting at 11 .38%.
Sarah (19:40.211)
Yeah, no.
Sarah (19:45.599)
Exactly. Yeah. Yeah. So the next thing you could do and the next question I should say is will lenders lend to you personally if you've got tax debt? Some do, some won't. So you've already cut your pool of lenders down short. The ones that do, they take your debt repayment across 12 months.
Trudi Cowan (20:03.692)
Yeah.
Trudi Cowan (20:09.006)
Yeah, okay.
Sarah (20:09.451)
So in a marketplace where the sensitized rate or the assessment rate for your borrowing capacity is sitting between 9 and 10 % at the moment based on the lender, if you've got 100, 200, 300K tax debt and you may have a payment plan for three years with the ATO, guess what? Not according to the lender. They're going to work that debt out as if it was a debt you were paying off within 12 months. You've got no borrowing capacity to borrow personally anymore. That's if they would take it that way.
Trudi Cowan (20:33.964)
Hmm.
Sarah (20:36.619)
So it's the same with business finance, not so much asset finance, but working capital. Getting loans for people that have got working cap issues if they've got tax debt is very difficult. So the best thing you can do is if you've got working cap problems is as soon as you notice that you've got them, bring me then. Don't wait six weeks, don't wait three months, don't wait six months. If you know, exactly.
Trudi Cowan (20:56.43)
Yeah, don't wait. No, definitely don't wait.
You don't have to touch it if you find that you don't actually need it, but it's better to have it there.
Sarah (21:05.483)
I can't get you the finance if you've got tax debt. I can't get you the finance if your revenue has decreased because you can't pay your suppliers because your accounts are being cut off because you can't pay them. So before you get into that position, call me. That's when we have a solution. But honestly, the best thing you can do to prevent all of this is to do your cashflow forecasting and do it properly from the start. So many businesses skip over it.
Trudi Cowan (21:16.174)
Mmm.
Trudi Cowan (21:27.278)
Yep. And make sure you put in Cashaside into separate accounts so you're not tempted to use it for your working capital requirements.
Sarah (21:36.427)
Yeah, a lot of my clients I suggest to them is that they have like their GST, their PIWG withholding tax, and then they in a separate account, and then they also have three months of their operational expenses in that account as well. Because if anything goes wrong, the bottom falls out of the market. We have another global pandemic that shuts the country down, God forbid, and not in our lifetime, not in your children's lifetime either. But...
Trudi Cowan (21:48.814)
Yeah.
Trudi Cowan (21:57.302)
Mm -hmm.
Sarah (22:01.387)
that would have given them enough breathing room to at least be able to work out the lay of the land before shit was going to hit the fan. And we were really quite fortunate as a country, as small business owners, with how the ATO responded and how the previous government managed that in a lot of ways. Sure, there were people that fell through the cracks like they always do and didn't qualify, but they didn't have to do what they did. And they did. And
Trudi Cowan (22:06.286)
Yeah. Yeah.
Trudi Cowan (22:16.558)
Anyway.
Trudi Cowan (22:27.278)
No, but it's also important to note that they are now back to business as normal. So those concessions that were available previously, they're not there anymore. The ATO is wanting those sets.
Sarah (22:32.171)
Exactly. Which means...
Sarah (22:38.859)
No. And if you're not paying your bills on time, they are going to come down hard on you. And I have had clients garnish shade. Now, Trudy, could you explain to our lovely audience what that means?
Trudi Cowan (22:43.982)
Hmm.
Trudi Cowan (22:50.03)
They basically take it directly from your customer or directly from your wages, which means that they're being informed that you have tax debt. Your employer or your customers might be informed or even I think sometimes they can take it direct from your bank in certain circumstances. So, you know, you don't really want those people being informed that you're having tax payment issues. So I just want to touch on two last options if you are really, really in the hole.
Sarah (23:08.587)
Direct from bank. Yeah.
Sarah (23:14.923)
Yeah.
Mm -hmm.
Trudi Cowan (23:19.662)
and needing some assistance. There are accountants and advisors around that specialize in negotiating with the ATO. So if you are needing one of those longer payment plans or some other sort of arrangement, there are specialist accountants, that's what they do, right? So, you know, your accountant should be able to direct you and put you in touch and help you connect with someone like that that can...
You know, all accounts can negotiate with the ATO, but there's some that that's what they do for a living. So they're really, really good at it. They've got the right contacts and can quite often get you a better deal. And then probably your last resort is to go and speak to a liquidator. Now, I'm not saying that's because you got to liquidate your business. I'm saying that because they do more than just liquidations. They have options around small business restructures and debt restructures and other things like that and may have some other options for you or.
Sarah (23:46.699)
Yes.
Sarah (23:56.843)
Yes.
Trudi Cowan (24:11.182)
They may even just tell you, you are trading insolvently and therefore you have a bigger issue than just paying your tax debt.
Sarah (24:18.803)
What I would like to say with that is whilst I 100 % agree with everything you've said, if you are that far, the can has been kicked that far down the road for you. What you have to realize is that from a lending point of view that if you're a company, yes, if you wind up a company, you put it into voluntary liquidation. It does not impact your personal credit score per se, but it is linked to your personal credit file by your company directorship.
And the moment a lender sees that you have liquidated a company, especially if there's been debts that have been written off to the ATO or a financial institution, they will not give you any money and it stays on your credit file for five years. And so think of, I unfortunately have to have this conversation with people after they've liquidated and they said, but the liquidator didn't tell me, they told me it wouldn't affect my credit file. And technically, no, it doesn't.
Trudi Cowan (24:54.99)
Mm -hmm.
Sarah (25:14.859)
but it's linked as a directorship and we can see it. So you can get finance in those instances as a couple of lenders, but you are paying a hefty premium on a home loan. Your home loan rate is now 3 % higher than what you would normally get. Now when it's 2%, that's not too bad if you're looking at 5%, but when it's 7%, you're now at 10. 10 % on $800 ,000 is a lot of money for interest repayments. Yeah. So.
Trudi Cowan (25:16.27)
Yeah.
Trudi Cowan (25:22.83)
See you.
Trudi Cowan (25:37.678)
lose a lot of money. But sometimes we get to that point so you know it's important to know all of your options.
Sarah (25:43.435)
So to manage tax debt, to manage tax debt to wind back to start is don't let them blow out in the first place. That's the best way to manage it. Yeah.
Trudi Cowan (25:49.102)
Yep. Don't let them lie. Change your mindset around what you are actually paying this money for. Yeah, don't let them lie in the first place. When cash comes in, put some aside and have a system that when, you know, every invoice comes in or once, twice a month or once a month or whatever the case is, you're literally transferring money into a separate bank account that doesn't get touched other than for paying your tax. That is the best way to make it is not your money.
Sarah (26:04.171)
It's not your money.
Sarah (26:14.635)
It's not your money.
Trudi Cowan (26:18.87)
It needs to go to the ATO. I have clients that every time they do payroll, they pay their employees and then the PAYG component gets transferred on the same day into another bank account. So they know that that money is being put aside.
Sarah (26:29.931)
That's coming from the ATO though, isn't it? They're talking about you having to pay your PAYG on the same day that you pay your payroll. Yes, I swear I saw something that also said they want you to pay coming. They were talking about you paying your PAYG on the same day too. Yeah.
Trudi Cowan (26:37.132)
Super. They're talking about that for your superannuation. That you'll have to pay your super on the same day as you pay your super.
Trudi Cowan (26:47.182)
That wouldn't surprise, I haven't said no one, but it wouldn't surprise me. But they definitely are talking about having to do that for you super. Expecting that to come in very soon.
Sarah (26:56.031)
Hmm. So managing tax debts, not fun. Again, reiterate, I don't like paying it either. No one likes it.
Trudi Cowan (26:59.982)
No one likes paying it. No one likes paying it. It's just a necessary part of business that we all have to do.
Sarah (27:11.435)
So get on top of that today, manage your tax debt by changing your mindset, putting the money aside because it's not your money and making sure that you're doing your returns, whatever they are, as early as you can. Don't leave them to the end. Don't leave them to your income tax return until March. Yeah. Yeah.
Trudi Cowan (27:19.246)
money.
Trudi Cowan (27:24.62)
Yeah.
Look, even with your Baselords, make sure, you know, don't leave it to the last due date to get your Baselords, because you're not giving yourself any time to understand how much money you are.
Sarah (27:35.947)
Exactly. So yeah, it's usually due 28 days after the end of that quarter. Do it the week that it's finished. So any other final tips for people today?
Trudi Cowan (27:48.11)
Take on top of it, get your accountant involved. If you're having stress, the sooner that you talk to your advisors about it, the easier it's going to be to manage it.
Sarah (27:58.219)
Fabulous. Our next episode guys is on employee entitlements. It's a not to be missed episode if you are employing people and we will see you in two weeks time.
Trudi Cowan (28:07.918)
Thanks everyone.