The ATO has turned to more aggressive tactics to collect the outstanding debts. This includes reporting amounts outstanding to credit reporting agencies, which will sit on your credit file. This will impact your ability to obtain finance from banks of other financial institutions or impact the interest rate you will pay on your loans as your lending profile will be deemed riskier than someone without the ATO reported debt on their credit file.
Another tactic the ATO are using is by issuing director penalty notices (DPN) for unpaid debt. A DPN gives the directors of a company 21 days to enter into an insolvency arrangement, if the directors don’t resolve the debt or enter into an insolvency arrangement the company debt will be transferred to the directors and the directors will become personally liable for this debt. All directors will be jointly and severally liable for the outstanding ATO debt. No amount of structuring would be able to save this debt from becoming personally liable.
The last resort by the ATO is to file the company for insolvency. The ATO pre COVID was winding up about 40 companies a week in court. Post COVID in February 2024 the ATO filed about 130 winding up applications alone.
As you can see there has been a dramatic shift in the ATO’s attitude to collection of outstanding debts.
Whist there are several strategies which you can pursue, such as small business restructuring, the most common form is to apply for a payment arrangement with the ATO to have this debt paid over time. Even these have been harder to obtain and often require more information to be provided to the ATO which includes the monthly profit of the business along with capacity to pay information. In most cases, the ATO will typically allow the longest repayment term for ATO debts to be between 18 – 24 months and requires all future debts to be paid in full. The ATO general interest charge rate currently sits at 11.34%.
There are some lenders that are specialising in providing loans to refinance these ATO debts on more favourable terms with the ATO.
Some of the typical lending parameters are below:
Up to 75-80% for loans up to $5 million.
Rates: from 7.24% – 8.24% pending loan amount and LVR.
Establishment fee: 0-1.25% pending on the lender which is used.
Valuation fee; at cost
Loan terms up to 25 years
Up to 5 years interest only
Security is required which will be in the form of residential or commercial property and these can either be owner occupied or investment properties.
These loans are for self employed applicants, and it is fine if your partner is on PAYG. No financials or NOA’s are required, an accountant’s declaration confirming income for FY2024 is all that is required.
The process is reasonably simple, a face to face or video call is undertaken with the broker to assess the taxpayer’s situation, and they will be provided with a credit tested quote, including the valuation quote. The loan is then submitted with a normal processing time is 5 working days, once approval is received then the ATO loan is discharged.
This works best for clients who have a tax debt, wants to pay the debt off at a lower interest rate or longer time frame, do not wish to have an ATO default recorded on their credit file or they have received a DPN and do not want the debt to be assigned to themselves personally.
If you wish to speak to someone about refinancing your ATO debt, please contact our office.
