Ask any small business owner what keeps them awake at night, and they will most likely say it is managing cash flow. Even when things are going well, it can be stressful. Throw in unforeseen events such as natural disasters or a global pandemic, and keeping the business ticking over becomes front of mind.
However, the obligation to meet quarterly tax obligations in the form of Pay As You Go (PAYG) instalments remains the same. For businesses with variable or seasonal cash flow, it can be especially difficult when unforeseen events arise.
“As a business owner myself, I know what it’s like,” says Josh Taylor, co-founder and head of product development at Tax Traders, an Inland Revenue-approved tax pooling intermediary in New Zealand.
“One of the things people don’t always appreciate about a growing business is that it always needs more money: the profit you make from yesterday’s sales needs to go into buying more stock. The more successful you are, the more difficult it can become.”
Taylor co-founded Tax Traders in 2011 specifically to help small to medium enterprises (SMEs) meet their tax obligations by providing flexibility around when they make their tax payments.
It was founded in partnership with the former Deputy Commissioner of Inland Revenue, Robin Oliver, and former Deloitte partner Mike Shaw.
Flexible tax payments get a big tick
A policy change, currently being considered by the federal government, aims to equip SMEs with flexibility to settle their PAYG obligations via a payment intermediary at a time that suits their cash flow and business priorities, without incurring expensive borrowing costs. The Australian Taxation Office (ATO) receives its payment on time and the payment intermediary provides the SME with a flexible and customisable repayment schedule.
This new policy will extend much further than any assistance with tax payments that the ATO currently provides. All of this will also be able to be done via the payment intermediary, without having to contact the ATO to arrange any payment plan.
The payment intermediary will be able to access low funding costs because of the structure of its proposed agreement with the ATO, which it then passes on to taxpayers. The result is that business owners don’t have to choose between paying their taxes on time and applying cash to other areas of their business.
The mechanism has been available in New Zealand since 2003. “We learn a lot from New Zealand’s tax system because it is a very good one,” says Michael Croker CA, CA ANZ’s tax leader in Australia.
“From an Australian tax perspective, there is a growing amount of unpaid, undisputed tax debts which is an indicator of problems within our tax collection system.
Picture: Michael Croker CA.
“There is a growing amount of unpaid, undisputed tax debts which is an indicator of problems within our tax collection system.”
“A mountain of PAYG tax debt is owed by small businesses,” he adds. “This has been a problem and COVID-19 has only made things worse. It’s time to explore new approaches to tax debt collection in Australia and good ideas or products from across the Tasman should be considered.”
Show of support
The policy change required to allow these flexible tax payments is currently being considered by the federal government. You can help get it over the line by writing to your federal MP in support.