Avoid penalties and interest: How to clear your ATO debt faster

The ATO has resumed its debt collection activities across the SMB sector after a pause during lockdown. This means businesses need to focus on clearing the debt as the ATO pursues harder collection measures. We are going to see supply chain issues in 2022 however open international borders will bring some relief with a surge in sales and new business.

Businesses need to get on the front foot and set themselves up for a positive year of growth and clearing Australian Tax Office (ATO) debt is an important component of this.

Olga Koskie, Principle at Tax Assure and leading tax debt specialist, said. “Engagement with the ATO is vital to prevent enforcement action. With the ATO specifically informing us that debt collection action is commencing, tax debt is something that cannot be ignored.”

Tips on how to clear ATO tax debt

Here are some top tips to help businesses clear their ATO debt faster.

Know your situation

The most important issue for businesses owners seeking to clear their ATO debt faster is to know their true situation. Knowing your amount of ATO debt is an important part of understanding what type of strategies you need to put in place to clear it.

Regardless of how you are structured, there may be different types and levels of debt involved.  It is of paramount importance to ensure you are across all of it. Koskie highlights that it’s very important to understand the consequences of your debt situation.

“If you are late paying any taxes you are considered non-compliant and the ATO may take enforcement action, even if the debt was incurred during, or just prior to the pandemic.”

“This enforcement action may include garnishee notices, director penalty notices- making directors personally liable for a company’s GST, super and PAYG tax obligations.”

“Wind-up applications and bankruptcy are also on the table. Having a clear understanding of personal liability is critical here as a catalyst to taking positive action.” 

Consult with your tax debt specialist

Good accountants have really earned their keep during the pandemic and the 2022 year is going to be no different. Work closely with your key advisors to ensure you are able to effectively evaluate your situation and reset your business objectives. This will help you to create a plan aimed at clearing your ATO debt and setting the business up for a strong year.

Koskie agrees. “Seeking expert help from the right people to ensure you get the best possible payment plan is critical. With an expert tax debt specialist, you can map out a strategy to meet cash flow needs, and where possible reduce debt,” she added. 

Create a payment plan to avoid penalties

ATO penalties and interest can significantly eat away at your balance sheet and cash reserves very quickly. Working with your accountant you can put in place a payment plan with the ATO and place a possible hold on collection action and any further unnecessary costs.

If you are managing other debts as well, one strategy is to focus on one debt at a time with the highest interest or penalties while meeting the minimum payment on others.

This works because more money will go directly towards repaying the principal balance, and less will be spent on paying interest. Spreading any extra money over several debts will lessen the impact on debt because you will end up paying more interest.

“Working with a specialist to determine a payment plan that is viable, matches cash flow, reduces debt and ultimately allows the business to continue to trade and grow, is the step many businesses need to now take. The time for action is now,” Koskie said. 

Sale-back finance

Getting funds in the door quickly is vital when working to clear ATO debt fast. Sale-back Finance is an attractive option. This works by turning existing business assets into cash.

Sale-back Finance has its origins in equipment leasing; however, it is also used to finance transactions where a loan is secured over existing assets that the borrower already has.

If a business owns an asset that is unencumbered, a business finance provider such as Earlypay can give you a loan against it, while allowing you to continue using it. The loan is then paid off over a three to five-year period. At Earlypay they tend to recommend Sale-back Finance on eligible assets such as vehicles or manufacturing equipment.

If the business is asset rich but having short-term cash flow problems, this method allows a business to keep using the asset while also using it as security for a loan.

Invoice Finance

Businesses that have ATO debt or a history of credit issues struggle to get finance through the banks. Invoice Finance has become the go-to option for many businesses that need to unlock funds fast without taking out a business loan or setting up a line of credit.

In essence, businesses use their invoices as collateral to generate payment upfront. It is a way for businesses to access funds against the amounts due from their customers. Invoice financiers like Earlypay can also take care of managing debtors and collections.

For Australian businesses that use Xero or MYOB, Earlypay’s invoice and Trade Financing solution can integrate with their accounting software to automatically access the invoices directly so it’s a really simple way for busy business owners to access funding.

Invoice Financing can help a business with cash flow, pay employees and suppliers and reinvest in operations. It can also be used to help a business clear its ATO debt faster.


Daniel Riley is a finance expert and the Chief Executive Officer of Earlypay