Managing Your Tax Debt
As a small business owner money can be tight at times. Adjusting to sporadic income whilst balancing regular bills can be tough, really tough. Throw into the mix Income Tax, GST, PAYG instalments and if you are an employer there is also PAYG withholding and Superannuation to contend with. Sometimes you wonder how you will get through this - we hear you!
Tax debt is still the biggest contributor in small business bankruptcy. With this in mind we have gathered together some handy hints to help you manage your tax payments and avoid a large tax debt.
Budgeting for Tax
Keep an adequate amount aside to cover tax whenever you receive a payment that hasn't been taxed, such as:
income as a contractor
profit from selling shares or property (capital gains tax may apply)
interest and share dividends
sharing economy payments.
There is a handy Income Tax Estimator on the ATO website, the estimator helps you to work out if you're likely to owe tax this income year.
You don’t need to wait for a bill from the ATO to make a payment. You can make prepayments at any time and as often as you like to make it easier for you to manage your tax.
What you need to do:
get your payment reference number (PRN)
work out how much to prepay using their online tools and calculators
prepay your tax using one of the payment methods that the ATO has available
Once these payments are received by the ATO, they will be held on your account unless you, or your Tax Agent, request a refund.
If you already have an existing debt, the prepayments may be used to pay that debt.
How to Prevent Debt
The ATO’s research shows that you are more likely to stay on top of your tax liabilities and payments if you:
keep amounts for GST, superannuation and income tax payments separate from your other business affairs – for example in a separate bank account or by making a prepayment
manage your cash flow and budget for monthly income and expenses
keep good business records and update them frequently – for example, weekly or monthly.
It's important to have a good understanding of your payment obligations so you can plan ahead to pay the right amount at the right time.
What if I pay an Incorrect Account
A payment transfer is the movement of a payment from one ATO account to another ATO account if a payment has been credited to the wrong account. You can request a partial transfer where a payment should have been made for two different accounts.
You need to provide the following details to request a payment transfer:
your contact details, including your name and phone number – you must pass proof of identity on the account the payment is being transferred from
details of the account the payment was made to, including the PRN, account name, TFN or ABN
amount of the payment
payment method – for example, credit card or BPAY
date of the payment
payment receipt number (if known)
tax type – for example income or activity statement
details of the account that the payment is to be transferred to, including the PRN, account name, TFN or ABN
details of the amount of the payment to be transferred – you can request a transfer of the whole, or partial amount.
You can request a payment transfer by phoning the ATO directly on 1800 815 886, 8.00am–6.00pm, Monday to Friday or give us a call on 07 5502 6673 and we will contact the ATO on your behalf
Knowledge and Planning is the key to avoiding a large Tax Debt.
We recommend our Mid-Year Tax Review Consultation in November / December to all our clients, please call our office on 07 5502 6673 for further details and to book in your review