Are hidden tax debts hurting your business growth?

Late last year, thousands of taxpayers - many of them small business owners - were blindsided by notifications from the Australian Taxation Office (ATO) about outstanding historical tax debts. The catch? Most had no idea these debts even existed.

For trade and maintenance franchises, particularly those in their early years, unexpected tax debts can disrupt cash flow and derail plans for growth. If your franchise is navigating the challenges of its first five years, understanding how these debts work and how to manage them is essential.

What are historical tax debts?

The ATO sometimes places debts “on hold” when pursuing them isn’t economical, such as when payment might cause serious hardship. These debts don’t vanish - they remain on your account and can resurface years later, often being offset against future tax refunds.

During COVID, the ATO paused its usual practice of offsetting these debts, leading to confusion when they reappeared in 2023 after an Australian National Audit Office review. Many small business owners found themselves suddenly notified of debts from years past - some dating back to 2017 or earlier.

In a recent statement, the ATO acknowledged the frustration this caused, stating: “It’s important to us that taxpayers have trust in our tax system and our records.”

But trust in the system doesn’t mean waiting for it to work itself out. For trade and maintenance franchises, ignoring these debts can lead to bigger issues down the line.

Small business debt is a growing concern

Out of the $50 billion in collectible debt owed to the ATO, two-thirds comes from small businesses. The ATO has now resumed regular debt collection practices, including reporting debts over $100,000 to credit agencies if no repayment terms are in place.

For new franchises, this can have serious consequences:

• Damaged credit ratings

• Limited access to future financing

• Cash flow challenges that affect day-to-day operations

If your trade or maintenance franchise is carrying an outstanding tax debt, ignoring it isn’t an option. Proactively engaging with the ATO and setting up manageable repayment plans can protect your business’s future.

Build strong financial foundations for your trade business or maintenance franchise

Managing tax obligations and staying on top of cash flow can feel overwhelming, especially in the early years of business. But it doesn’t have to be. Accounting Navigator offers practical, tailored solutions to help trade and maintenance franchises like yours master the financial foundations critical to success.

• The Ultimate Bookkeeping Series is perfect for learning the day-to-day systems that keep your franchise’s books clean and up-to-date.

• Small Business Foundations Course equips you with the skills to understand your business’s finances, set up budgets, and build sustainable growth strategies.

Don’t let hidden debts or poor bookkeeping hold your franchise back. With the right tools, you can master your business finances and focus on what you do best - growing your trade or maintenance franchise into a thriving success story.