Small to medium enterprises (SMEs) across Australia are being encouraged to seek immediate help if they are struggling to pay their taxes due to the covid-19 pandemic-induced cash-flow issues.

It has been reported that small to medium businesses currently owe the Australia Tax Office (ATO) a record-high $21.4 billion in tax debt in the financial year of 2020. This illustrating the huge impact covid-19 has had in regards to it’s disruptions on the economy.

Inconsistent cash flow has a massive impact on when and how a business can meet its tax obligations. It is important for SMEs who are experiencing financial distress to get in contact with their advisors to help ease the burden that they’re currently experiencing so that they reduce the risk of falling behind on their tax repayments.

If you are a business owner who is falling behind on your tax payments, it is super important that you act quickly to get up to date with your lodgements. Although the ATO has been generally sympathetic about the problems associated with uncertain cash flows and has made changes to its normal practices during the pandemic such as; suspending its normal collection strategy in April 2020, this type of generosity won’t continue forever and probably not for much longer.

It is predicted that the ATO will be ramping up its enforcement activity over the next six months as the trend of rising tax debt continues to balloon.

Looking at last year’s data, a third of the SME ATO debt was housed in the construction industry, which has traditionally accounted for a disproportionately high level of insolvency appointments.

It is fearedthat these potentially terminal businesses may ‘infect’ their directors, owners, employees and stakeholders if action is not taken to address the financial imbalance.

In regards to Australia’s advantageous business rescue legislation, it is important for SME’s to take into consideration:

Payment Plans

Payment plans can be highly beneficial at managing short-term illiquidity. However, more decisive options should be considered for businesses that have been severely impacted and are carrying significant debt (including ATO debt) on their balance sheets.

Voluntary Administration

The purpose of voluntary administration is to determine a company’s future via an independent registered liquidator (the voluntary administrator) takes full control of the company. This enables the director or a third-party time to find a way, if possible, to save the company or its business.

This option is Australia’s business rescue program. It provides a chance to not only defer payment, but also compromise the amount of the payment to a level that the business can afford.

The New Small Business Restructuring Process (SBRP)

The SBRP was introduced as a response to the pandemic to assist businesses to re-establish operational liquidity by severing the financial hardship of legacy debts through a formal debt compromise with creditors.

This option has the potentially to financially restructure and save a distressed business. The SBRP not only allows you to defer payment, it also gives you an opportunity to negotiate the amount of the payment.