With the new Omicron variant providing renewed uncertainty, businesses that are facing (or soon may be in) financial distress have been urged to proactively engage with their accountant and the ATO now, in order to maximise their chances of recovery.
CA ANZ business reform leader, Karen McWilliams FCA, said businesses may be concerned they do not have the cash flow to pay taxes right now and may be contemplating not lodging their returns to avoid these discussions, but that is a reason to engage with the ATO now, not ignore or avoid them.
CA ANZ sounded the warning after noting that insolvencies are down 42 per cent year-on-year with ASIC reporting earlier this month only 4,235 insolvencies in the financial year 2021 compared to 7,362 in FY20. Insolvencies are down nearly 50 per cent between 2019 and 2021.
“Possible explanations are that businesses have simply closed their doors having used government stimulus measures to wind down the business, or the combination of recent government support at both Commonwealth and state level with creditors’ willingness to work with viable businesses could potentially be covering an insolvency epidemic,” Ms McWilliams said.
“Everyone knows that small to medium businesses have done it tough since early 2020, and our simple advice to them is to put your hand up and ask for help. If you think your business may be in financial distress, don’t bury your head in the sand.
“Many Australian businesses have relied on government support during the pandemic – providing a great buffer to the economy and keeping many thousands in work, and the government must be commended for this.”
However, as various forms of government assistance are being wound up, the reality of rebuilding trade, getting cash flow going again and paying back debt will become stark for many business owners, according to CA ANZ.
During 2020, the government provided a temporary moratorium from a director’s duty to prevent insolvent trading to support businesses with temporary liquidity challenges as a result of the pandemic.
“But the rubber is about to hit the road for many of these businesses. Rent deferrals from landlords have ended, and the ATO has commenced calling in debts so it’s important these businesses get on top of their financial situation before it runs away from them,” Ms McWilliams warned.
Ms McWilliams said business owners should not be afraid to engage with the ATO, especially during such extenuating circumstances.
“If you owe the ATO money, there’s a good chance you’re making money – but you may have temporary cash flow issues,” she explained.
“The ATO is generally happy to work with you to agree on a payment plan and a path forward that works for both parties.
“The caveat is accessing payment plans requires you to have your lodgement obligations up to date so you, and the ATO, have a complete understanding of your tax position. Your accountant can help form the payment plan to make sure you can meet the payments as well as your ongoing expenses and future tax liabilities.
“If you are actively ignoring the ATO’s attempts to engage with you – you may find yourself in their sights.
“It never pays to have your head in the sand and think things are going to blow over. Doing nothing is not an option.”
Ms McWilliams encouraged business owners to use the upcoming Christmas break to get their house in order.
“Businesses should use this period to take a good hard look at their finances, and if there’s a problem, engage with your Chartered Accountant to devise a plan forward,” she added.
“Chartered Accountants deal with these issues every day and can help you navigate the situation to come out in the best possible shape.
“Understand your financial position, seek help early, and engage with the ATO. If you follow these principles, you will be in a better position than if you do nothing.”
Get breaking news
Login
iscover
Newsletter
