Managing ATO debts post-christmas with Charman Partners

One of the major challenges facing the hospitality for many venues as the festive season and tourist dollars come to an end is cashflow, particularly that attributed to tax, in January and February.

Added to this cashflow stress is the increased activity of the Australian Taxation Office (ATO) in the debt recovery space. As the ATO is provided more and more data, for example by Single Touch Payroll, the Commissioner has a greater ability to chase outstanding lodgments and payments.

We have seen an increase in the industry of the ATO’s action which includes:
– Superannuation guarantee reviews and audits
– Default assessment notices for PAYG Withholding
– Garnishee notices placed on venue bank accounts
– Director penalty notices, where the directors themselves are potentially liable for the debts of the trading entity.

In addition, the Commissioner’s leniency towards the hospitality industry, particularly during the pandemic, has now worn thin and the ATO are becoming more aggressive in their pursuit of unpaid debts and outstanding lodgments. To take the stress out of your venue’s tax obligations, we recommend the following actions:

Use deferrals where available

The ATO will allow certain lodgment types to be deferred, such as activity statements and income tax returns, which can include both lodgment and payment. Tax agents are already afforded an extended date, so use their extensions where you can. Further extensions may be possible based on a range of factors.

Caution entering into payment arrangements

By and large the ATO are willing to enter into arrangements for debts across income tax, activity statement and even superannuation guarantee debts, however multiple defaults of these arrangements significantly reduces their willingness to enter into new ones. Ensure that before entering into an arrangement, you have properly planned out your cashflow and you extend it out for as long as possible. This doesn’t preclude you from paying off the debt earlier but lower repayments over a longer time might give you breathing room to ensure there’s no default.

Budget for payments

Set up a weekly budget with realistic targets on revenue, wages, costs etc so that you can properly plan when each tax payment (superannuation, activity statement, payment plans, income tax) will fall due. Put funds aside in a separate bank account so that each week enough is moved across to another account so that these payments can be made.

Refinance the debt

Where possible, reach out to your bank or finance broker to see if there’s a short or medium term product that might be used to refinance the debt. Make sure you have all of your lodgments and financial details up to date so the process can go through as quick as possible. Whilst not yet law, Treasury has proposed that after the 1st July 2025 general interest charge on ATO debts will no longer be deductible. Refinancing the debt into another product will retain your tax deductibility status of the interest and may even be a cheaper alternative.

Bring the books up to date
Ensure that even at a basic level your books are up to date. This will help with any potential refinancing, help plan your cashflow, and in the hands of a trusted adviser with hospitality experience, ensure that you aren’t paying more tax than you should be.

Get assistance

Dealing with the ATO can be incredibly stressful for anyone, so rely on your accountants and tax agents to communicate with them on your behalf. Seek professional assistance when it comes to dealing with banks or lenders, or when it comes to dealing with director penalty notices or creditor demands. Sometimes a quick chat may make all the difference. The strain on not only your venue’s finances, but your own personal lives, can be overwhelming – so reach out for help as soon as you can.

Reach out to David Gow