News

Tax Office cuts debt deal with small businesses

The Tax Office has offered small businesses a "one-off" deal to wipe their tax debts through varied payment options and low interest rates before it toughens up its debt collection.

As part of the deal, some 500,000 small businesses can choose from three monthly-payment plans. They include a six-month plan with interest reduced from 12.51 per cent to 6.28 per cent, or a 12 or 18-month payment plan with the same interest reduction.

The arrangement will be conditional on monthly payments being made by direct debit; all lodgement obligations being bought up to date; and future payment and lodgement obligations being met.

Businesses and taxpayers with a turnover of less than $10m and debts of less than $25,000 qualify for the offer. However, those participating in mass-marketed schemes will not qualify because they are already subject to concessional arrangements. The deal will not apply to debt incurred from June 30, 2004.

In future, where small businesses enter into a direct debit payment the ATO plans to reduce the General Interest Charge from 12.5 per cent to 10 per cent over the agreed payment period.

About half of the 500,000 businesses eligible for the offer had debts of more than $1,000, tax commissioner Michael Carmody said. His 2002/03 annual report showed SMEs and micro businesses paid $7m and $15m respectively in GST penalties compared to the $9,000 paid by large businesses (CPD Communicator edition 65).

Carmody said the offer preludes the ATO?s "firmer" approach to debt collection "following the successful implementation of the new tax system". Those failing to take up the offer could face legal proceedings or the recovery of debt from their bank accounts of other income streams, he said.

The deal follows the Inspector-General of Taxation David Vos earmarking the ATO?s small business debt collection practices as priority for review (CPD Communicator edition 70). He planned to inspect the ATO?s administrative approach to company tax compliance, of which 60 per cent of overdue debt is collected from small business, and its repayment arrangements to help small businesses to get out of debt.

The Council of Small Business Association (COSBOA) deputy chair Tony Steven said the deal was a "good one", particularly given the forecast tougher approach to debts. "If a small business has found themselves in a position where they do have a debt to the ATO, they would be wise to take advantage of the offer," he said.

CPA Australia welcomed the move. "It is a rare, but real, opportunity for concessional tax treatment but should not be seen as a big free kick to bad taxpayers," its tax counsel Paul Drum said.

The NIA said the announcement was a "creative position" of improving debt collection. "It?s offering a big enough carrot to encourage people to reduce their tax debt," NIA technical policy manager Gavan Ord said.