It’s easy to paint the ATO as ‘the man’, taking away hard-earned tax dollars from the little guys. Yet this perception may actually be harming your business.
Speaking on the My Business Podcast, Alexander Laureti, a partner with accounting firm LMS Advisory, said the ATO should be viewed as a friend by SMEs and is a necessity for the Australian economy.
“At the end of the day, they're just doing a job and they're collecting the taxes that are raised by your business activities,” he says.
“GST is a function of being in business and it's collected and it's paid, same with income tax.”
A business partner
According to Mr Laureti, business owners should view the ATO on the same level as someone actively involved in their business.
“When it comes to having the ATO as one of the many creditors that you have in your business, business owners have always said, ‘Well, they're the last people that I want to pay because they're the enemy and I resent the fact that I have to pay tax at all’,” he says.
“[But the ATO is] just any other creditor that you should treat with equal priority to all the other people in the business.
“It is a change of mentality because it says, 'Well, I'm going to treat the ATO as one of the people that's involved in running my business', but it's so important to do.”
The main reason for needing to change this thinking about the Tax Office is the ATO’s interest rate, suggests Mr Laureti.
“If you're late on your payments, they're worse than loan-shark rates,” he says.
“You will get much cheaper money from your bank, from your home loan, even from your overdraft, compared to the ATO.”
The reason for this is that, according to Mr Laureti, the ATO doesn’t like being treated like a bank.
“They basically just want you to pay what you owe and they'll leave you alone,” he says.
“When it comes to dealing with the Tax Office, I think that it's important that you either get your adviser involved or you approach them directly if you're having cash flow difficulties. Approach [the ATO] too, and go in and make a payment arrangement ... [and make] sure that when you do run into difficulties you make arrangements and you communicate with them.”
He adds: “The ATO doesn't have to be the enemy, they can just be in the background and completely silent to what it is that you're doing, because if you're doing all the right things you have nothing to fear from the ATO.”
Timeliness is key
Mr Laureti notes that the ATO isn’t just “winding up businesses on purpose”, but only making decisions on businesses that don’t operate within the law.
“Putting businesses out of business is not what the ATO is on about,” said Mr Laureti.
“But if businesses are consistently showing that they're not able to manage their cash flow, and they're not able to manage their tax affairs as well, that's an indicator that there could be other people as well who are going to get burned along the way.”
You should never avoid paying your tax, as this can result in disastrous side-effects for a business, he says.
“Business owners have a tendency to say, ‘Well, I can't pay my BAS, I don't want to put it in. The ATO won't know about it,” says Mr Laureti.
“At the end of the day, if the ATO doesn't know what's going on with your affairs, they might make it up for themselves – and that could be a lot worse of a situation; it could lead to audit, to anything else.”