SMEs TO BENEFIT FROM CHANGES TO INSOLVENCY REGIME
The new insolvency reforms introduced by the Australian Government for incorporated small businesses with liabilities of less than $1 million have far reaching benefits for the pandemic-ravaged economy and Aussie families, according to a leading tax accountant.
The reforms, which include new debt-restructuring, offer some other major advantages to directors according to founder and CEO of Emergency & Preventative Accounting Specialists (EPAS), Catherine McMurtrie.
"The new reforms follow the temporary measures which were introduced in March of last year in response to the COVID-19 pandemic and they will provide significant relief for Australian SMEs."
"2020 was a particularly challenging year for many SME owners and company directors. For those businesses requiring debt-restructuring these new reforms afford them the chance to stop creditors issuing a statutory demand to wind-up their business and they provide a temporary safety net from personal liability."
Businesses and company directors wishing to avail themselves of the new reforms need to satisfy a criteria which McMurtrie says is very straight forward and not onerous.
"This doesn't apply to sole traders however. It is specifically for company directors with businesses which do not have debts exceeding one millions dollars and whose superannuation payments and ATO lodgements are up-to-date. It's not something that a person can undertake on their own, but accounting practices like my firm can quickly ascertain the eligibility of a business, sort out any compliance issues and then establish a plan whereby the debts of the business could be settled for as little as five cents on the dollar, or a figure realistic and bespoke to the business cashflow at the time."
According to McMurtrie, contrary to a popular belief amongst many Australian business owners, the ATO is not the monster it is often thought to be.
"The ATO generally doesn't want to wind businesses up because it knows if it liquidates a business owing money, it's not going to get anything. Instead the ATO knows that if it settles an outstanding tax liability that doesn't force the SME into liquidation, it can later claim BAS monies, PAYG tax, income tax and superannuation for employees will be maintained, all of which is far more beneficial to the economy than shutting down a business and creating a further welfare burden for other tax payers."
McMurtrie says she hasn't seen any reforms as beneficial to Australian SMEs in her twenty three years in the accounting industry, fifteen of which have been aspent running EPAS, and she has been flooded with enquiries since the introduction of the reforms in January.
"We are seeing many business owners with tax liabilities they're struggling to meet and an especially large number of businesses that have outstanding superannuation debts. What people have to realise, is that the ATO is more concerned with compliance than debt collection and superannuation is an especially important tax. When I refer to 'super' as a tax my clients are often surprised and say; 'Aren't they two different things?' The short answer is yes they are and no they're not. Simply put, when a business fails to pay super on time, it needs to disclose the unpaid super to the ATO and then pay the ATO the super, which then has the effect of the ATO stepping up and paying the super directly to the superannuation fund, on behalf of the business. Under the new reforms the ATO is not nearly as concerned with outstanding tax debt as it once was, recognising the need to ease the long term burden on the Australian economy by ensuring compliance with superannuation requirements."
With small to medium businesses contributing a purported 57% of Australia's GDP, creating around 7 million jobs and employing 85% of the Australian workforce, the new reforms are designed to help insulate the economy from the adverse impacts of the current pandemic, which are likely to continue for some time.
"No one knows when we'll come out from under the Covid cloud, but the Federal Government cannot continue to make cash payments to prop up the economy. In March it has advised that Job Keeper will be turned off and many SMEs are going to feel the pinch. These new reforms offer eligible businesses the chance to significantly reduce, if not completely wipe, tax and creditor debts. In some cases my company EPAS has been able to get businesses a refund when otherwise they owed serious money. Simply stated, this new legislation is extremely beneficial to SMEs and represents the biggest change to the insolvency regime for at least thirty years!"
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