Tweet

ATO tax break hides a financial sting

Guest post by: Ken Richards

Article Overview: Thousands of companies that have applied to the Australian Tax Office to defer their tax and interest payment obligations are now likely to have difficulty obtaining finance because of their decision.

ATO tax break hides a financial sting

Thousands of companies that have applied to the Australian Tax Office to defer their tax and interest payment obligations are now likely to have difficulty obtaining finance because of their decision. There is a view in the business arena that tax arrangements are fine as long as the terms of repayment are met. But this is not the view of bank and finance companies, which take a very dim view of companies seeking funding that are unable to pay their tax obligations on time.

Once a company has gone down the path of deferring their tax debt, which is then recorded as an outstanding liability on their balance sheet, they are effectively warning their financiers that they are having cash flow difficulties.

When assessing an application for funding, financiers look to see if a company's tax payments are up to date. Many are now requesting statements of tax payments (tax portals) to verify that tax payments are current, and if a company has moved to defer its tax liability, this is seen as a blight on the company's financial position.

In fact, this may be the sole reason why a funding facility is not approved. Banks and finance companies require a full explanation from the company's accountants as to why and how the deferral arrangement was entered into, and this may appear in the company accounts for two to three years.

From a cash flow and business point of view, being able to defer your tax liability and not having to pay interest charges with the blessing of the ATO may sound a perfect opportunity.

Yet, once the tax deferral is recorded on the balance sheet, this will remain on the company's books for some time. Any financier examining the company's records in this time period is likely to consider the deferral of payments to the ATO a negative and will determine that the business is not being run effectively.

Banks, in particular, are more than likely to deny funding to any company that has recorded a tax debt on their balance sheet.

A non-payment of tax may make it necessary for companies to provide detailed projections, cash flows and full disclosure of the problem when applying for extra funding for the next three to four years.

Interlease strongly recommends that companies should not make arrangements with their accountant to defer their tax liability without taking into account that this decision could detrimentally affect their credit rating and their capability to obtain funding in future.

Making an arrangement with the ATO should only be considered as a last resort in full knowledge that future funding may be compromised.

Article by Gary Wilkie

Related Articles
  Time Management - to Facilitate Highly Succesful Meetings
  Time Management Training, The Secrets of Using the WASP STING
  How to Predict Behavior Like Abraham Lincoln Did
  Emailing Lots of People At Once
  Will You Let Little Things Get in Your Way?
  Wanting What We Can't Have
  Giving Yourself Permission To Take A Break From Your At Home Business
  How Obama's tax credit helps/hurts IT spending
  FRANCHISE - A PARTNERSHIP - YOU BET
  Movies for Entrepreneuers
  Rule 20 Rules are Made to be Broken
  The Heroes Control Their Business
  The Dangers of Humour In Advertising
  5 Reasons Why You Need To Take Daily Breaks While Working At Home
  Financial Analysis
  A New Year in the Pharmaceutical Industry
  The Power of Hope
  Beware of Profit Thieves
  The Importance of Your Business Financial Statements
  The Dynamics of Small Actions

Article Tags: ATO, ATO Tax Break, australian tax office, debt, finance, Funding, interest payment, liability, payment obligations, tax, tax break



Related Forum Posts
Re: Quote of the Day - ?"I thought it (Star Wars) was too wacky - Sometimes your ideas hides you breakthrough. As long as you believe in them, push them out and people will buy into it
Re: What Businesses to Bail Out? - Very true - I agree that only certain businesses will be "rescued". Sad for the American public that its the companies who are billions+ in trouble. It has certainly been a bad week in the US financial world. I was even watching special coverage of an overseas financial market last night. Lots of ripples through the financial community. Its sad that nothing is in place to actual oversee and truly regulate the financial industry. To many people refuse to be accountable and they leave the rest of us holding the bag. Shri
Re: How do you make the most of your day? - Hi Cheryl , You gave some good tips here, I recommend trying them, because I tried them myself. It didn't work for me, Why? because when the timer go off, I tell to myself, just one second, i need to finish this or that, and than I take he break, and one second turns to on minute and 15 minutes. Or the other way, 10 minutes break can turn into 1 hour break. My luck (or not) I only have 2 hours to work online, so i squeeze my tasks to 2 hrs and that's it. I work with google calendar these days, schedule the daily tasks and create tasks for the unusual ones, and when i am done, I mark them. If I didn't get to some tasks I move them to the next day.
Re: How do you refocus on work after vacation? - I have a VERY difficult time refocusing after vacation. Even a few day break makes it hard for me to get back into the swing of things. The longer the break the harder it is getting back into it. I haven't found anything that helps me become re-focused easier. If you find something then let me know!
Higher success rate with strong finance - It seems that many entrepreneurs with a strong financial background succeed more often than those who are not quite so savvy in understanding financial statements, cash flow, etc.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Work at home Opportunities for the Disabled

Steps For Starting A Small Business

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.