Thousands of SMEs take up tax relief offer from ATO – but the leniency won’t last

More than 85,000 small businesses have taken advantage of the Australian Taxation Office’s downturn support measures, although experts warn there are signs that the ATO is starting to shift its generous stance.

As the downturn savaged small business earlier this year, the ATO announced a number of measures to support struggling companies, including interest-free payment plans for companies carrying tax debts and the deferral of business activity statement payments.

Figures from the ATO published in today’s Australian Financial Review show the ATO has entered into 85,000 interest-free payment arrangements and deferred 1,500 activity statement payments.

Insolvency experts including Cliff Sanderson from Restructuring Works says the ATO, which has traditionally forced a large number of companies into insolvency during bad times, has turned into a “powder puff” during the downturn and helped many companies survive or at least prolong their existence.

But there are some signs that the lenient stance is ending as the economy starts to recover.

Insolvency expert Michael Fingland of Vantage Performance has noticed a clear change in mood.

Where the ATO was giving out two-year payment plans just a few months ago, it is now giving a maximum of 12 months. And where the taxman was prepared to enter arrangements over the phone, struggling companies now need to provide written justification if they want to put an arrangement in place.

There are also concerns that many of the companies who have received arrangement could be digging themselves into a financial hole, as lenders and finance companies are very hesitant to lend money to companies with tax debts on their books.

Gary Wilkie, director of Interlease, relates the story of a business owner who was turning over $15 million a year, with a $1 million profit and an $80,000 tax bill. His accountant advised him to take an arrangement with the ATO, only to find out later his lender wasn’t impressed.

“People think they are doing the right thing in accepting the arrangement, but it will come back to bite them.”

“While you might easily be able to meet the payment plan and think your credit rating is magnificent, the lenders want to know why you need an arrangement in the first place.”

Wilkie says companies that have arrangements should make every effort to end them quickly if at all possible.

“You’ve got to sort it out. People will loathe to take you on if you’ve got debt in the first place.”