Loans To Pay the ATO for Business Tax Debt
Is it a smart idea to take out a loan to pay your taxes?
As a business owner, you need to pay your Business Activity Statement (BAS) on a quarterly basis. This is the net GST that you’ve collected plus Pay As You Go (PAYG) taxes, the tax from payments that you make to employees so you can meet your end-of-year tax liabilities. This can also include the tax portion of your own salary.
BAS payments are due on the 28th of February, April, July and October. You get an extra month to file after Christmas, just in case you’ve been celebrating a little too much and are moving slowly in the new year.
It’s easy to see situations where it might be difficult to pay BAS. Some businesses do all their trade during certain periods of the year. You might need to pay suppliers on time, or your employees, leaving little left for the tax folks at the time you need to pay.
If you’re more than 90 days late in paying the ATO for a debt of $10,000 or more, they can report this to external credit reporting agencies.
ATO also hires external debt collectors.
Directors of companies can be held personally liable for unpaid debts.
So, there can be severe consequences from not paying your BAS on time.
At the same time, while you can negotiate a payment plan with ATO, this might prevent you from obtaining other business finance.
And a payment plan might also involve high repayments and short deadlines for payment. This could put stress on your cashflow that you don’t need.
How to decide
So, is there an easy answer? Well: yes and no. The easy answer is that it depends on your individual circumstance, which means that no, it’s not that easy.
So, don’t put your head in the sand.
You’ll need to think about timing, cash flow, consequences and the interest rates you can obtain for the loan.