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How to Help Your Clients with Their Business Tax Debt

business tax debt

Tax debt is a serious issue for many small businesses. In 2021, it’s estimated that small businesses owe the ATO $21 billion. Given the large amounts owed to the ATO, business finance brokers are well placed to help their clients with this challenge.

Implications of tax debt for business owners

Many small businesses use the ATO like a line of credit to overcome cash flow problems. This can have some unfortunate consequences.

Although a payment arrangement with the ATO might be a possibility, there’s no guarantee that a payment arrangement will be offered. In some cases, the tax debt will be payable on demand. 

Traditional lenders take a dim view of tax debt. Usually, they won’t lend to business owners with outstanding tax debt, even if they have a payment arrangement with ATO. Having tax debt will limit finance options. For example, a business owner will find it difficult to get many forms of business finance or a personal home loan if there’s an outstanding debt to the ATO. 

Since 2020, the ATO has been able to report business tax debts to credit reporting agencies if the amount owed is more than $100,000 and more than 90 days overdue. Having tax debts included in credit reports could damage future prospects of attaining the business or personal finance needed in the future. 

Even if a business owner is able to get a payment plan with the ATO, the full amount of the debt will be payable on demand if a single payment is missed or if any future tax obligations (such as BAS payments) are missed. 

If a debt is outstanding and the business owner isn’t communicating with the ATO, they can take further steps such as turning the debt over to a collection agency, issuing garnishee notices, and eventually winding up the business.  

Given these shortcomings, small businesses should avoid running up ATO debts.

How business owners can manage their tax debt

Business owners need to keep up with their lodgement obligations. For most businesses, GST payments are due on dates set by the ATO. If the business owner doesn’t have the funds to pay GST obligations, a BAS should still be lodged to avoid penalties. The same applies to company tax.

How business finance brokers can assist with tax payment challenges

When a business gets behind with its tax obligations, a better option is to get a business loan to pay it off. Unfortunately, most banks won’t lend to a business that owes money to the ATO. 

Unlike banks, Moula provides unsecured business loans that can be used to pay off outstanding ATO debt. Manageable fortnightly payments make it possible to remove the risk and stress connected with owing money to the ATO. This enables business owners to avoid the cash flow problems resulting from making lump-sum payments to the ATO. 

With a fast and simple application process, an unsecured business loan from Moula could be the answer for your clients who are seeking to overcome the challenge of business tax debt.

Business tax debt success story

A freight company needed to purchase a new truck and trailer for $600,000, but it wasn’t able to get traditional bank funding with low base rates due to outstanding tax debt. One alternative was to use a non-bank lender to finance the purchase at a much higher base rate.

Instead, with assistance from one of our Partners, the freight company used an unsecured loan from Moula to pay off the tax debt and qualify for the traditional bank funding, saving over $100,000 in interest. Plus, the company used the GST rebate from the truck purchase to pay out the smaller loan early, with no penalty fees or interest charged beyond the fortnight when the loan was paid out.


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