I would like to thank the Australian Government for allowing businesses to delay paying their tax, but often it comes back to hurt businesses ability to borrow.
At the start of the global financial crisis the government was offering loads of incentives to keep the economy going; Individual’s got a lovely stimulus payment while businesses were given the opportunity to delay paying their GST or company taxes.
With interest free and or low-interest rate repayment schemes being offered by the ATO it really was a great option to keep cash in your business. The cash could then be used to make more money or just simply be kept as a buffer during the tough times.
Well, this has now become a problem if you are looking to finance business equipment and motor vehicles.
Why, because finance companies think there is a cash flow problem and perceive a risk that the business may not be able to meet day-to-day cash flow needs. Financiers also believe that the ATO will have a priority on debts in the event of liquidation and those financiers and creditors alike will be unlikely to recover moneys owed.
How do they know – With most applications for finance, prospective lenders require seeing a copy of the business’s latest financial statements. Often the balance sheet liabilities will show the Australian Taxation Office (ATO) as a creditor which in turn prompts most finance companies to ask whether the business applicant has any tax debt or repayment arrangement for tax debt with the ATO.
At this stage we will ask for a copy of a current Tax portal, which most accountants can obtain on behalf of their clients. The tax portal shows the movement of money through the tax office, any outstanding debt, your payment history etc. If a business is paying off their quarterly debt, the financiers are unlikely to lend.
So if you are looking at financing some new equipment or motor vehicles for your business and have a tax debt, the best thing to do would be to pay this debt off first, or at least inform your broker during the first consultation so that you’re financing can be placed with the best financier.
tina-clark 