Caution urged on tax deferrals

Businesses thinking about taking up the Australian Taxation Office's (ATO's) offer to defer tax payments could be compounding their financial difficulties, a finance broker has warned.

Interlease director Gary Wilkie said businesses should think very carefully given the adverse financial consequences of deferring payments into the next financial year.

“Businesses and their advisers need to be aware that banks and finance companies take a very dim view of companies seeking funding that are unable to pay their tax obligations on time,” he said.

“Financiers are currently requesting statements of tax payments to verify that tax payments are up to date.”

Wilkie said while general business accepted that a company is healthy as long as tax payments can be met, this view is not shared by banks and finance companies.

“Once a business has gone down the path of deferring their tax debt, which is then recorded as an outstanding liability on their balance sheet, they are effectively warning their financiers that they are having cash flow difficulties,” he said.

Any application for finance by a business is checked to see if tax payments are up to date.

“If a business has moved to defer its tax liability, this is seen as a blight on the company's financial position because banks and finance companies consider not paying due taxes as the worst transgression one can commit,” Wilkie said.

“This may be the sole reason why a funding facility is not approved.”

He said deferring tax should be a last resort action by a business, despite the ATO’s blessing.