1 in 4 SMEs struggled to pay tax on time even before the shutdowns

By Tony Zhang|16 July 2020
Sydney CBD

Firms will need to be aware that the government might face a wave of “tax debtors” within the Australian business community after its cash stimuli and wage subsidies end in September, according to a new report.

Even before COVID-19, when the economy was fairly healthy, it was revealed 25 per cent of businesses could not find the cash to pay their tax and GST on time.

The findings come from an independent survey commissioned by Money.com.au, an online financial information platform for businesses and consumers, of 261 business owners – 88 per cent of which are SMEs.  

The results reveal that 1 in 4 businesses overall – and 21 per cent of SMEs – were unable to pay their GST and tax in cash, in full, in 2019. 

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Firms will need to be aware that with the country in its first recession in 29 years, small businesses are likely to be hit the hardest.

Spokesperson and financial adviser Helen Baker said that the challenge of managing good cash flow becomes more apparent when BAS and tax time comes. 

“The fact that a significant proportion of businesses don’t have the cash to pay for their ATO bills in full each time suggests that businesses are not setting aside money throughout the year for these payments,” she said.

“Some businesses may also find that what they have calculated and set aside for their tax may have been underestimated, so there are calculating discrepancies in what is actually owed. In a perfect world, money would be parked each month; however, businesses are often using their funds to put back into the business.

Among the quarter of businesses overall who were unable to pay their full GST and tax bills in cash every time in FY 2019, 64 per cent and 83 per cent of SMEs – mostly paid it through a repayment plan with the ATO or on credit card. 

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Sixty-five per cent went on a payment plan or paid via credit card at least twice in 2019, and 16 per cent did so every time.

The survey also revealed that 27 per cent of businesses overall and 10 per cent of microbusinesses secured financing at least once in order to pay their GST and taxes in FY2019.

Tax lawyers will need to be aware that three in four businesses cited cash flow issues as the major reason they were required to go on payment plans with the ATO or make payments via credit. 

Specifically, cash flow issues due to long-outstanding customer or client payments, according to 43 per cent of businesses overall and 29 per cent of SMEs. A further 21 per cent said insufficient cash flow arose because the business spent beyond its means.

“With many businesses struggling to stay afloat over the last few months and as we enter our first recession in nearly three decades, businesses need more leniency from the ATO than ever before,” Ms Baker said.

“The fact that nearly a third of cash flow issues derive from unpaid invoices is concerning, given that many businesses are going under. The worst could be yet to come for those businesses that have recently undertaken large jobs and bill in arrears. 

“If this problem is experienced by a significant proportion of businesses, it could cause a chain reaction of delayed payments throughout the business sector. Business financing may be a suitable option for businesses struggling with cash flow.”

1 in 4 SMEs struggled to pay tax on time even before the shutdowns
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