ATO Debt and Private Credit Solutions

Many small business owners would have read with trepidation the ABC Headline “ATO chases small businesses for $34b in debt, insolvencies tipped to hit post-global financial crisis levels” (source).

This suggests there may be a great many small businesses with overdue GST, Superannuation and employee benefit obligations who are now receiving Director’s Penalty Notices (“DPNs”) or demands from the ATO for unpaid taxes.

The challenge they must face under these circumstances is that DPNs and ATO demands may negatively affect relationships with existing lenders, especially banks, by triggering default or impairing the ability to borrow further funds.

A failure to clear obligations under DPNs can also have a lasting, and personal, punitive affects. Once a director receives a DPN they are usually given 21 days to pay off the debt or take alternate action such as appointment of an external administrator. This may involve a negotiated process to settle debts from income under Safe Harbour provisions.

For directors of small businesses with property and/or other assets, often the simplest and quickest solution is to raise funds against equity in real property (residential and/or commercial property). This can remove the threat of ATO action and make bank refinance a viable option again, once debts are cleared.

Semper has helped many companies overcome these problems. One example is a Melbourne businessman faced with post-Covid rental relief debt recovery. He had used the company’s tax reserves to fund the business during lockdown and now sought a loan to pay off these debts. He also needed time to reinvigorate business income and sell one of his properties. Sorting out the ATO debt would also enable refinance with the bank after these issues were settled.

Semper’s unique solution involved a mix of first and second mortgages over separate property assets as follows:

1. First mortgages over the commercial premises and an investment property, the latter to be sold during the loan term, and;
2. A second mortgage against the primary place of residence to retain the bank relationship and keep the low cost of (bank) funds. This ensured Semper didn’t replace cheaper consumer debt and protection under the National Consumer Credit Law with more expensive debt that did not.
   
   

When it comes to tax debt and DPN obligations it is best to work with professionals that understand the most effective loan structures for retaining and maintaining banking relationships and achieving maximum tax effective cash-flows that ensure a rapid return to cash-flow positivity and profitability.

For any ATO-related debt obligation cases, please call Semper on 1800 736 737.