In Australia, tax debt is a real problem for both individuals and businesses. The Australian Taxation Office (ATO) often responds with harsh penalties for those who owe money. If you are struggling with tax debt, it is important to seek help from a financial expert. This article will explain the causes of tax debt, the response from the ATO, and how a financial expert can help you evaluate your position and help satisfy your tax requirements.
Tax debt in Australia
The Australian Taxation Office (ATO) is responsible for the collection of taxes in Australia. Tax debt is a problem for both individuals and businesses in Australia, and the ATO often responds harshly to those who owe money.
The ways individuals should pay their taxes in Australia
There are a few ways individuals must pay their taxes in Australia: through PAYG instalments, voluntary contributions, or by requesting a Tax File Number (TFN) variation.
- PAYG instalments allow individuals to make smaller payments when they receive their salaries throughout the year, as opposed to one large payment at tax time. This is beneficial for those who may not have the funds to pay their tax bill in full at once.
- Voluntary contributions are payments made above and beyond the individual’s required tax liability. These contributions can be made in order to reduce the overall amount of tax owed or to receive a refund sooner.
- TFN variations allow taxpayers to have their tax withheld from specific types of income at a lower or higher rate than what is specified on their Tax Notice of Assessment (NOA). This can be helpful for those who have multiple sources of income and want to ensure the correct amount of tax is being withheld from each source.
Causes of tax debt for individuals in Australia
There can be a number of reasons why individuals in Australia may find themselves owing taxes to the Australian Taxation Office (ATO). These can include earning more income than originally expected in a given year, owning a business or investment property, or not claiming all eligible deductions and credits.
If you find yourself with tax debt, the first step is to evaluate your finances and figure out exactly what you owe. You can then work on a plan to pay off the debt over time. The ATO offers a number of payment plans to choose from, depending on your individual circumstances.
If you are struggling to pay your tax debt, you should seek help from a financial expert. A professional can work with you to evaluate your tax debt and ensure you create a realistic and achievable budget and repayment plan.
How companies should pay their tax in Australia
There are a few ways companies should pay their tax in Australia. The ATO has outlined a number of methods companies can use to calculate and pay their tax.
The most common way to pay tax is by calculating your company’s taxable income and basing tax payments on the calculated value. You can find more information on the ATO website about how to do this.
Another way to pay your company’s tax is through PAYG instalments. This is a payment plan allowing you to pay your company’s tax over time, rather than all at once. You can find more information about PAYG instalments on the ATO website.
Finally, you can also elect to pay your company’s tax as part of its annual income tax return. This is done by including the company’s Taxable Income and Tax payable in the relevant section of the return. You can find more information about completing an annual income tax return on the ATO website.
Some of the causes of tax debt for companies in Australia
There are a number of reasons why companies may accumulate tax debt. Many companies in Australia do not pay enough tax throughout the year, which can lead to a large tax debt at the end of the financial year. This can be due to a number of reasons, such as:
Not keeping up to date with changes to the tax laws
Companies must keep up to date with any changes to the tax laws, as these can often affect what they need to pay in tax. If a company is not aware of these changes, it may end up paying less tax than it owes, which can lead to a large tax debt.
Not understanding how to calculate and pay taxes correctly
Many companies also find it difficult to correctly calculate and pay their tax. This can often lead to tax debt, as the company may not have paid enough tax throughout the year.
If a business is not aware of all the deductions they are entitled to, it may end up paying more tax than necessary.
Struggling to keep track of expenses and income
Another reason why companies may accumulate tax debt is if they are struggling to track their expenses and income accurately. This can be due to a number of reasons, such as:
Having a complex business structure
A company may have an unnecessarily complex business structure, which can make it difficult to keep track of all the income and expenses. This can often lead to tax debt, as the company may not be able to correctly calculate its tax without fully understanding its financial situation.
Not using accounting software
Effective accounting software can help businesses to track their finances more effectively. Without this software, businesses may struggle to correctly calculate their tax.
Not having enough staff to keep up with the paperwork
One reason why companies may not have enough staff to keep up with the paperwork is they have a high staff turnover. This can lead to tax debt, as new, poorly trained and inexperienced employees may not fully understand the company’s financial set-up or the role they are expected to play.
Not having an accurate record of income and expenses
If a company does not maintain accurate records of their income and expenses, it may struggle to evaluate what they need to pay. This can lead to a tax debt if they underpay the ATO.
The response from the ATO
The Australian Tax Office has a number of options in the event of tax debt, which may include:
- Issuing a notice of intent to levyThis notice gives the taxpayer a set period of time, usually 21 days, to make arrangements to pay the debt or dispute the debt. If the debt is not paid within this time, the ATO may take steps to collect the debt, such as by garnishing wages or seizing assets.
- Garnishing your wagesIf the ATO decides to garnish your wages, it will ask your employer to withhold a certain amount of money from each paycheck and send it to the ATO. This money will go towards paying off your debt.
- Seizing assetsThe ATO can seize assets such as property, cars, or even bank accounts if you do not pay your debt to them. The ATO can take the assets and sell them to pay off the debt.Note the ATO cannot seize all of your assets; you should be left with the bare minimum required to live on.
- Referring the debt to a debt collection agencyThe ATO may also refer the debt to an organisation specialising in collecting debts for the government. The debt collection agency will contact you and try to get you to pay the debt and they may take legal action to try and get the money from you.
- Arrange for an auditIf you have a large tax debt, the ATO can decide to audit you or your company.An audit is a review of your tax and financial records to make sure you are reporting your income and expenses correctly. The audit may investigate several years’ worth of records. The audit team may ask for documentation such as bank statements, receipts, and invoices to support your tax returns. If it is revealed you have underreported your income or overstated your expenses, it may impose penalties and interest on the debt.
- Tax debt may result in fines and penalties
The ATO can impose fines and penalties in addition to any debt for the following reasons:
- Late payment
- Not filing a return
- Failing to keep records
- Making a false statement or omission
- Payment plans or compromise agreements
If you are unable to pay your tax debt in full, the ATO may allow you to enter into a payment plan. This means you will make regular payments to the ATO until the debt is paid off.Alternatively, the ATO may also allow you to enter into a compromise agreement. A compromise agreement is a deal between the ATO and the taxpayer in which the taxpayer agrees to pay a certain amount of the debt in exchange for the ATO forgiving the rest of the debt.
Corporate Lifeline – how a financial expert can help evaluate your tax debt
An experienced, professional financial expert will evaluate and review your financial situation, income and expenses, and confirm what you actually owe in tax..
At Corporate Lifeline, we have helped hundreds of Australian companies and individuals with financial difficulties. We can negotiate with the ATO on your behalf to ensure the best outcome for you or your business.
Our Business Advisory team can review your company’s financial setup and strategy and work with you to develop a plan to address any issues.