Small business owners are being warned to address outstanding tax debts before enforcement action by the Australian Taxation Office potentially exposes their personal assets.
According to an article published by Inside the small businessThe warning follows findings by Australia’s National Audit Office that small businesses account for $35.9 billion of the ATO’s $54.2 billion of collectible tax debt, and stricter debt collection measures are recommended.
Malcolm Howell, partner at Jirsch Sutherland, described the situation as a “warning shot over the bow” for small and medium-sized businesses that have significant tax debts.
“The ATO is under pressure to recover more outstanding tax debt and is using all the tools it has available,” Howell said. Inside the small business.
“We have seen a significant increase in director penalty notices (DPNs), the issuance of garnishment notices and asset freezes. If you have a significant tax debt, now is the time to address it.”
Howell warned that many business owners underestimated how quickly a business’s tax liability could become a personal financial problem.
While a tax liability may initially fall on the company, the issuance of a DPN can significantly increase the personal risk faced by directors. Personal guarantees can further expose business owners and potentially put their own assets at risk.
The warning comes as Australian SMEs face increasing financial pressures, including rising rents and operating costs, rising borrowing costs, payroll taxes, land tax and the introduction of Payday Super.
The potential personal consequences of businesses’ financial difficulties are also reflected in figures from the Australian Financial Security Authority.
In May, almost 28 percent of people who became personally insolvent reported that they had been involved in a business during the previous two to five years.
“The sooner business owners seek advice, the more options they will have,” Howell said.
“Don’t wait for the ATO to take the first step – act now.”
Click here to read the full Inside the small business article.