Tax Commissioner Michael D'Ascenzo today held out a helping hand to the 706 thousand small businesses in Australia struggling with tax debt. Collectively, small businesses with a turnover of under $2 million currently owe the Tax Office $6.5 billion.

With the economic downturn likely to exacerbate the tax debt problem, the Commissioner has set in place a series of initiatives to ease the tax burden on the SME community from 1 June including:

Twelve month interest-free payment arrangements
Available to businesses with an annual turnover of less than $2 million who have an activity statement debt, the Tax Office will not apply the General Interest Charge (GIC) to the tax debt for 12 months where the business has entered into debt payment arrangements (activity statement and income tax) negotiated from 1 June 2009 until 30 June 2010.

Businesses wanting to tax advantage of the GIC free period are being encouraged to call the Tax Office on 13 11 42 (or the 24/7 automated phone service on 13 72 26).

Once the arrangement is approved, SMEs will receive a letter of confirmation together with payment slips.

Interest-free deferral of the payment due date on activity statement liabilities
The Tax Office is also giving SMEs the ability to defer their next activity statement payment. While the tax owing will still need to be paid, the deferral aims to provide short term relief to those businesses experiencing a cash flow problem. A deferral of up to two months is possible for quarterly and annual payers and up to one month for monthly payers. The deferral applies to activity statements that have not as yet been lodged.

Attempts by the Tax Office to open a dialogue with SMEs about tax debt are having an impact with a 7% increase in the number of tax debt cases under arrangement.

And a big stick to those who don’t comply...

With leniency for those trying to do the right thing comes a tougher stance on those attempting to rort the system. The cash economy is still high on the Tax Office agenda with data matching programs increasing and the release of key focus areas for 2009/2010 including:

The home renovations sector;
Some sections of the retail industry such as small value, high turnover retailers; and
Certain sections of the hospitality industry (particularly those establishments offering lower cost products).

The Tax Office has also released a product called the Personal Living Expense Guide. The guide provides examples and sample worksheets to business and their representatives about the information the Tax Office look at when analysing a taxpayer’s living expenses as part of a cash economy audit. It’s designed to help business operators assess their risk of audit scrutiny.

More information
The Commissioner was speaking at a Council of Small Business Associations National Business Summit in Melbourne. Click here to read the speech.
Helping small business reduce tax debt