A recent update from the Australian Tax Office (ATO) has made managing outstanding tax debts more costly, as the agency pursues a staggering $50 billion in unpaid taxes. Since July, the interest on the ATO’s two-year payment plans, set at a rate of 10.78 per cent, is no longer eligible for tax deductions. Consequently, this change means individuals with tax debts could face increased repayment amounts.
However, small businesses and sole traders may find a potential workaround. By financing their tax liabilities through loans or overdrafts, they can deduct the interest from taxable income. Ashley Debenham from Etax accountants explains that if a business owner takes a loan at 10 per cent to settle a $20,000 tax bill over two years, they may save approximately $676 due to the tax deductibility of interest on the loan.
The ATO’s payment structure typically requires a 10 per cent upfront payment. However, for sole traders and small businesses struggling with outstanding Activity Statements and unable to refinance, there is an option for a 12-month interest-free plan.
Additionally, support is available for low-income individuals facing financial difficulties, with 20 free tax clinics across the nation offering assistance. In extreme cases, those in dire financial situations may petition the ATO to forgive any accrued interest, provided they can substantiate their request, as noted by Tax Clinic director Connie Vitale.
It’s important to remember that the information available is general and not a substitute for tailored financial advice. Individuals should assess their own financial circumstances and consult professionals when considering their options.