They say nothing is certain except death and taxes—and sure enough once you do last year’s tax return and deal with a BAS or two, it seems like tax time has come around again.
Managing tax, BAS and superannuation lodgements and payments are always a burden for small businesses. If you’re financially under strain, like many small businesses have been during the pandemic, you may have fallen behind on your obligations with the Australian Tax Office (ATO). It’s easy for one unpaid BAS to become two, while you’re trying to get the payment together… and then it snowballs from there.
In some good news, if you have been struggling with your BAS and tax returns over the past few years, you now have a welcome reprieve in the form of the ATO late lodgement penalty amnesty for small businesses.
Announced on 9 May 2023 as part of the 2023-24 Budget, the ATO late lodgement penalty amnesty is a program for small businesses in Australia that gives a grace period for BAS and tax returns originally due between 1 December 2019 and 28 February 2022.
If those returns are now lodged between 1 June 2023 and 31 December 2023, any failure to lodge penalty that applies to the late lodgement will be automatically cancelled.
To qualify for the amnesty, your small business must have an aggregated turnover of less than $10 million at the time of lodgement.
Notably, the amnesty doesn’t apply to privately owned groups or individuals who control over $5 million of net wealth.
The ATO late lodgement penalty amnesty was put in place to encourage small businesses to re-engage with the tax system and get their obligations up to date. For some businesses this could be three years of lodgements, and the bookkeeping to calculate the numbers.
The ATO has ramped up debt recovery efforts since early 2022 and in 2023 has returned to full recovery mode. It’s a level of activity being described as “aggressive”.
Essentially, this amnesty is the ATO’s last olive branch before closing off its COVID support. After this, it will be gloves off to bring their debt book down and restore normal trading conditions.
So, if your business has outstanding lodgements within the given timeframe, and you plan to continue operating, this is your opportunity to get everything in order and move forward in a ‘less debt, less stress’ position.
While the ATO late lodgement penalty amnesty for small businesses is a welcome way back to compliance, it’s important you look before you leap.
What this means is, before lodging, it’s critical that you understand what the debt position is expected to be for your business after lodgement.
Once you lodge outstanding returns, the ATO will expect you to have a plan to pay the debt. If you’re unable to, they’ll take steps to encourage you to enter an insolvency appointment.
It’s also important to note that as a company director, you’ll be automatically personally liable for all business activity statement (BAS) debt where the debt relates to a BAS not lodged within three months of its due date.
If your company can’t pay an accountant to do all the work, or it has no chance of paying the expected debt, you may be best to appoint a liquidator to your company straight away. If you don’t the ATO probably will for you. It’s important to note that outstanding lodgements aren’t an obstacle to appointing a liquidator.
On the other hand, if your company has sufficient money and assets to pay an accountant to do all the work, and can give yourself a realistic chance of paying a reduced debt amount by undertaking an insolvency restructure. You can pay some or all of the expected liability following lodgement, an ATO payment plan will give you a better chance of paying the debt over time.
If an ATO payment plan isn’t sufficient to pay off your ATO debt, an insolvent restructure may allow you to pay a reduced debt amount. Your options for this differ depending on your business structure:
Small Business Restructure - A small business restructure is a simplified, cost-effective way to restructure your company debts by proposing a plan to creditors. You can continue trading and keep control of your business throughout the process but work alongside a small business restructuring practitioner.
Voluntary Administration - Voluntary administration involves the appointment of an administrator who takes over your company’s affairs and deals and reports to creditors. Their aim is to come up with a plan to save your company and get the best returns for creditors. You can continue to trade throughout the process.
During a small business restructure or voluntary administration, creditors cannot take recovery action against your business.
Part IX (9) Debt Agreement - A debt agreement is a low-cost, legally binding formal arrangement between you and your creditors to repay a portion of their debts over a period of up to three years. It allows you to repay a reduced amount based on what you can afford. A registered debt agreement administrator acts as a mediator.
Part X (10) Personal Insolvency Agreement - If you’re not eligible for a debt agreement, a personal insolvency agreement is a legally binding agreement between you and your creditors. It may involve a lump sum payment to creditors, the net proceeds of property distributed to creditors or periodic payments. All options are actioned via a registered trustee.
If you can’t realistically comply with your ATO lodgement and payment obligations through one of these options and can’t generate a wage for yourself as owner, it may be best to look at directly entering liquidation, or bankruptcy if you’re a sole trader.
The ATO late lodgement penalty amnesty can be a great way for you to get back on good terms with the ATO before the year is through.
But, and it’s an important but, you need to make sure you have a plan to pay your tax debt after lodgement.
The best way to do this is through restructuring. Restructuring gives you the opportunity to take back control of your debts and restore your business to health. And ultimately, keep the unavoidable tax man happy.
If you’re looking to clean up your ATO lodgements and have a fresh start with the ATO, this may be the right opportunity to do so. See how we can help with our Instant Online Assessment, or get in touch with our team of business debt restructuring specialists today on 1800 861 247 for free, confidential support and advice on the best way forward.