While accountants will be looking to help vary PAYG instalments to provide timely cash-flow benefits for their business clients in the wake of the Black Summer bushfires, floods and the COVID-19 outbreak, concerns have been raised about the ATO’s position on interest and penalties.
The ATO’s current position remains that if varied instalments are less than 85 per cent of the total tax payable of the instalment income for the financial year, general interest charge (GIC) on the difference, as well as penalties, may apply.
However, Chartered Accountants Australia and New Zealand tax leader Michael Croker believes the ATO will adopt a facilitative approach this quarter should the varied instalments breach the 85 per cent tolerance level.
“Recent discussions with the ATO indicate there’s a lot of empathy towards small businesses doing it tough right now due to factors outside their control. It’s hard to know when such businesses will get back on their feet,” Mr Croker said.
Mr Croker also believes accountants have a lot to offer in light of the recent trading conditions.
“Mostly, [accountants’] sage general business advice is of most value. But when it comes to tax, 28th February looms as an important date for clients who pay PAYG instalments,” Mr Croker said.
“Coronavirus is proving to be particularly difficult challenge given lingering uncertainty on the duration of the outbreak. Clients reliant on international tourists should be focusing on a range of cost-reduction issues, not just PAYG instalments.
“It’s also important to take account of the nature of any compensation receipts received. For businesses, PAYG instalments are based on the concept of ordinary income, not statutory income, and clients need help to tell the difference.”
Mr Croker also believes the PAYG quarter will be a telling signal for the government about the budget impact of bushfires, floods, the coronavirus and the resultant downturn in consumer demand or output.
SME owners feeling the effects of COVID-19 had previously been urged to reach out for professional help, while the government has been called to lend a hand to businesses feeling the pinch.
“It’s not the time for complacency. There are solutions and processes that can buy a company time, and the sooner owners and directors seek these solutions, the better. It’s vital to take swift action,” said Jirsch Sutherland national managing partner Bradd Morelli.
“The anticipated downturn in revenue will have a huge impact on working capital, and those businesses without sufficient reserves may find themselves suffering cash-flow issues.
“If this occurs, business operators should seek assistance immediately to try to minimise the impact.”