This is particularly true if you have large amounts of debt within the business, for example, and in such instances liaising with the authorities and delaying (or restructuring) your repayments can be extremely beneficial.
There are some instances where firms look to defer their tax repayments unnecessarily, however, simply out of habit or because they wish to invest their capital elsewhere. This is a concern that has become prevalent in Australia in recent times, with smaller outlets within the recruitment sector and similar markets having developed a habit of leveraging the Australian Taxation Office (ATO) as an accessible source of credit.
A Look at the Issue and the Response of the ATO
According to Robert Gottleibsen from The Australian, the government’s midyear economic statement revealed that the ATO is currently owed a staggering $19 billion in overdue taxes. Nearly 70% of this total was accounted for by small businesses with an annual turnover in the region of $2 million, including a host of independent recruitment agencies. Not only does this highlight the fragility of the economy in the current climate, but it also suggests that firms are content to delay their tax repayments in order to cope with real-time business challenges.
This is an issue that the ATO and the Australian government has monitored for some time, prompting it to propose strong action by way of a deterrent. More specifically, the government has announce that will officially name business that owe the ATO money to credit agencies, effectively severing all sources of credit and threatening vulnerable SMEs with bankruptcy.
While some have derided this as being an excessive response, Gottleibsen argued that this was just the tonic that the economy and small business required in the existing climate. It is hard to disagree with this assertion either, as business-owners would be able to operate from a sound basis of knowledge and make clearly defined choices about how they manage their ventures. So, rather than pursuing the easier path of deferring tax repayments, small businesses would be far more likely to restructure or embrace a new business to underpin their future growth.
The Bottom Line: How Will This Impact on SMEs and Investors
Ultimately, this proposal may have a positive effect on the economy, as it forces businesses to face up to their financial challenges earlier and encourages them to seek out advice before they accumulate a large tax debt (or lose their status among potential creditors).
There will undoubtedly be some casualties in the short-term, however, while the landscape will also change for financial market traders and investors alike. The former will need to be increasingly vigilant when share trading or investing in managed stock portfolios, for example, as companies that are named to credit agencies will fail to offer a viable return.
Investors are also likely to become increasingly selective about the companies that they back, as they look to avoid committing to companies that are likely to have a poor credit rating in the near-term future.