Help with an ATO debt, and what each option actually does

A company has four realistic options on an unpaid ATO debt: pay it, arrange a payment plan, ask for the interest and penalties to be remitted, or refinance the balance into borrowing secured on property. Release — the thing people mean by debt forgiveness — is not one of them. The ATO says plainly that companies, trusts and partnerships cannot apply to have tax debts released, and GST, PAYG withholding, the super guarantee charge and director penalties cannot be released for anyone. A debt the ATO has stopped chasing is not forgiven either: it remains due and legally payable, and any refund the business earns is used against it.

What help from the ATO actually looks like

Searches for help with a tax debt are usually made by somebody hoping the debt can be reduced. On the ATO's own pages, help means something narrower and more useful than that: a change to the timetable, or to the interest, almost never to the tax. Knowing which is which saves weeks, because three of the things below can be arranged quickly and one of them is not available to a company at all.

What the ATO lists for a taxpayer in financial difficulty:

• More time to lodge or to pay. Discussed case by case, and asked for before a due date rather than after it.
• A payment plan. Pay the balance in instalments instead of at once — see how to set up an ATO payment plan for the self-service limits and what disqualifies a business from using them.
• Remission of the general interest charge. Some or all of the interest, on application.
• Remission of a penalty. Where a penalty has been applied and there is a reason it should not stand.
• Priority processing of a return. Useful where a refund is the thing that clears the balance.
• Release from the debt itself, where paying it would cause serious hardship — and this is the one a company cannot have. It is dealt with below.
• Dispute Assist, free support for eligible individuals and small businesses in a dispute with the ATO.

Read that list again and notice what is missing. Nothing in it reduces the primary tax. The GST the business collected, the PAYG it withheld from wages, the income tax assessed on a year it traded profitably — those amounts stay, and every option above is about when they are paid and what grows on top of them in the meantime.

You are not the first one this week

Most owners in this position ring their bank before they ring anyone else, and most of them are told no. The reasons are almost never about whether the loan would be repaid: the last financials look wrong, a lodgement is late, the credit file has a mark on it, or a tax debt appears in the bank statements and the application stops there. Those are the things a bank exists to care about. None of them says anything about whether there is equity in the building.

That gap is where HomeSec has been since 2004. We are not here to judge how the balance got there, and we have seen it often enough that it does not surprise us. What we look at is whether there is enough unused equity in real property and whether the purpose is a genuine business one — not financials, not a credit score, not whether everything is up to date, and no interrogation about the last two years. From a clean, complete scenario funds can be available in as little as 24 hours, and interest can be capitalised for up to six months so there is nothing payable while the business gets its feet back under it.

Back to the options, because which of them is open to you is decided by the ATO rather than by any lender.

Release, remission, waiver, write-off: what each word means for a company

Four different things get called debt relief, and they are not interchangeable. Only two of them are worth a company's time.

1. 1
   Release — not available to a company.Release is the serious-hardship provision, and the ATO's own wording is that you can apply if you are an individual or the trustee of the estate of a deceased person, and that companies, trusts and partnerships cannot apply to have tax debts released. Even for an individual it cannot reach GST, PAYG withholding, the super guarantee charge or a director penalty — which is precisely the list a director usually wants released. If a director penalty notice has made a company debt personal, release is not the way out of it.
2. 2
   Remission — available, discretionary, and under-asked.The ATO can reduce some or all of the general interest charge, and can remit a penalty. It is a decision, not an entitlement, so it is asked for in writing with the reason the delay happened and what has been done since. On a balance that has been running for a year or two the interest can be a large part of what is owed, which makes this the most valuable thing a company can ask for.
3. 3
   Waiver — real, but not a tax process.Waiving a debt owed to the Commonwealth is a power the Finance Minister holds under section 63(1) of the PGPA Act, delegated to officials in the Department of Finance. Finance describes it as a last resort, says waivers are discretionary with no circumstance creating an automatic entitlement, and says plainly that debts are rarely waived solely on the basis of financial hardship. It is not something to build a plan around.
4. 4
   Write-off — the word that misleads most.Writing a debt off is an accounting decision about whether chasing it is worthwhile. In the Commonwealth's own words, a decision to write off a debt does not legally extinguish it, and if the debtor's circumstances change the debt can be reinstated and pursued. Nothing has been forgiven.

The one that looks like forgiveness and is not

A business owner who logs in and finds the balance gone, or who has heard nothing from the ATO for two years, usually concludes the debt has been dropped. What has almost always happened is that it was put on hold.

A debt on hold is a tax debt the ATO has paused collecting. It will not contact you about it — and in the same breath it says the debt remains due and legally payable. Two consequences follow, and both of them catch people. Any credit or refund the business becomes entitled to is used to reduce the debt, so the first profitable year quietly pays it. And if the situation changes and the ATO decides collection is cost effective, it can take the debt off hold and start again. A quiet debt is not a closed one, and a business about to be sold or refinanced should treat it as still there.

The first week

1. 1
   Get the real number, from the integrated client account.Not the figure on the last letter. Online services for business, or your tax agent, will show the balance by account and period, and which part of it is interest and penalty rather than tax. The split matters, because the interest and penalty are the part that can be remitted.
2. 2
   Lodge everything outstanding, even if nothing can be paid.Lodging and paying are separate obligations with separate consequences, and being behind on lodgements narrows every option above — including the self-service payment plan. See what to do when the BAS is due and the money is not there.
3. 3
   Decide, honestly, whether this is a timing problem or a solvency problem.A debt left over from a bad year, in a business trading soundly since, is a timing problem and every option here helps. A debt that grows every month because the business loses money every month is a solvency problem, and the help it needs is not more time.
4. 4
   Ring the Small Business Debt Helpline on 1800 413 828.Free, independent and confidential advice from qualified financial counsellors, for small business owners in financial difficulty. Nobody there is selling anything. If the answer is that the business is not viable, you want to hear it from them rather than from a creditor.
5. 5
   Ask for what you are actually entitled to ask for.A payment plan, remission of the interest and penalties with the reason in writing, and more time on anything not yet due. The ATO business enquiries line is 13 28 66, and the self-help service on 13 72 26 arranges smaller plans without speaking to anyone. If a plan has already been refused or cancelled, that is a different problem with its own route.
6. 6
   Work out what the property could release, if the debt needs to go rather than be scheduled.Clearing the balance in full is what stops the interest, ends the risk of a garnishee notice and removes the exposure to disclosure to credit reporting bureaus. Whether that is possible is a question about equity, and it can be answered the same day.

When borrowing is the answer here, and when it is not

Paying the ATO out with borrowed money makes sense when the debt is the residue of something that has passed — a slow season, a client who paid late, a project that ran long — and the business behind it works. It makes sense when there is a real exit: a property to be sold, a refinance waiting on a clean tax position, a contract that settles. And it makes sense when the debt is blocking something larger, which it often is, because a tax balance in the accounts is where a good many other lenders stop reading. That is what tax debt loans are for, and the money is paid straight to the ATO rather than to the business.

It is the wrong answer in three situations, and we would rather say so here than on the phone. If the business is losing money every month and the debt is simply the visible part of that, borrowing against the family's equity keeps a loss running and risks the house as well as the company — the conversation to have is with a registered liquidator about small business restructuring, not with a lender. If there is no equity in real property, this is not our answer at all: the helpline above and a registered liquidator are, and no amount of shopping around changes it. And if the interest and penalties are most of the balance, ask for remission first — a figure the ATO might reduce is not a figure worth borrowing in full.

Where the credit file is the thing standing in the way rather than the tax, a business loan with bad credit covers what is and is not assessed, and who will lend when everyone else has said no is the honest version of the question most people are really asking by this point.

This page explains what the ATO's own options are and what the words around them mean. It is general information, not legal, tax or insolvency advice: what to do in your circumstances is a question for a registered tax agent, a registered liquidator or an insolvency lawyer, and the ATO's published guidance on help with paying is the primary source.

Reviewed by Paul Stone, Joint Chief Executive