“In this world, nothing can be said to be certain, except death and taxes.” So said the great American statesman, Benjamin Franklin. A quotation that is sadly as true as it is depressing.
It’s fair to say that most of us do our level best to minimise our tax obligation. That said, when you do have to cough up to the tax man it is important to do so on time.
As an experienced finance broker in Perth, Finance 48 has put together this article to explain why it is important to do so. Counterintuitively, some of the reasons are more positive than negative. That said, the law of the land and penalties for not paying tax means the stick is probably more of an incentive than the carrot. So, let’s first take a look at the law.
In Australia, businesses have legal compliance obligations to pay taxes on time. These obligations are outlined in the Australian tax law and enforced by the Australian Taxation Office (ATO). Failure to comply with these obligations can result in serious consequences, including penalties, fines, and legal action.
The first compliance obligation for Australian businesses is to register for an Australian Business Number (ABN) with the Australian Business Register (ABR). An ABN is a unique identifier assigned to businesses by the Australian government for tax purposes. Businesses must register for an ABN if they are carrying on an enterprise in Australia or if they have a business structure, such as a company or partnership.
Once a business has an ABN, it must register for the relevant taxes with the ATO. The most common taxes that businesses must register for include the Goods and Services Tax (GST), Pay-As-You-Go (PAYG) withholding, and Fringe Benefits Tax (FBT). The registration process involves providing the ATO with details about the business, such as its legal structure, contact information, and expected turnover.
After registering for taxes, businesses must lodge tax returns with the ATO on time. The due date for tax returns depends on the business’s legal structure and financial year end. For example, companies must lodge their tax returns within 12 months of the end of the financial year, while sole traders and partnerships must lodge their tax returns by 31 October each year.
In addition to lodging tax returns, businesses must also pay their taxes on time. The due dates for tax payments vary depending on the tax type and business structure. For example, businesses registered for GST must pay their GST liability quarterly, while businesses registered for PAYG withholding must remit payments to the ATO each month. However, if a business has a GST turnover over $20m, it must report and pay GST monthly.
Avoiding Penalties and Interest
Australian businesses that fail to pay their taxes on time may be liable for penalties and interest charges. The amount of the penalty and interest depends on the amount of tax owed and the length of time it remains unpaid. Here are some examples of the penalties and interest charges that Australian businesses may face for failing to pay their taxes on time:
- General Interest Charge (GIC): The GIC is a daily interest charge that applies to unpaid tax liabilities. It accrues from the due date until the tax is paid in full. As of 1st April 2023 the current GIC rate is 10.46% per annum.
- Failure to Lodge on Time (FTL) Penalty: If a business fails to lodge its tax return on time, it may incur an FTL penalty. The penalty amount is calculated based on the number of days the return is overdue, the amount of tax owed, and the size of the business.
- Failure to Pay on Time (FTP) Penalty: If a business fails to pay its tax on time, it may incur an FTP penalty. The penalty amount is calculated based on the amount of tax owed and the length of time it remains unpaid.
- General Interest Charge (GIC) on Penalties: If a business incurs FTL or FTP penalties, it may also be liable for GIC on those penalties.
In addition to these penalties and interest charges, businesses that repeatedly fail to meet their tax obligations may face more severe consequences, such as legal action, court proceedings, or bankruptcy. It is important for businesses to prioritise timely tax payments to avoid penalties, interest charges, and other legal consequences.
To avoid these penalties and interest charges, businesses should ensure that they have accurate and up-to-date records, that they understand their tax obligations, and that they seek professional advice if necessary. Businesses should also make sure to pay their taxes on time, or to contact the Australian Taxation Office (ATO) to arrange a payment plan if they are unable to do so. By meeting their tax obligations in a timely and accurate manner, businesses can avoid costly penalties and interest charges, protect their reputation, and contribute to the health and growth of the Australian economy.
Maintaining a Good Reputation
In Australia, paying taxes on time is not only a legal requirement, but it is also important for companies in maintaining a good reputation. Consistently paying taxes on time demonstrates a company’s commitment to fulfilling its obligations, meeting its responsibilities, and being a responsible corporate citizen. Here are some reasons why paying taxes on time is important for maintaining a good reputation in Australia:
Paying taxes on time demonstrates a company’s integrity and commitment to complying with laws and regulations. This can help to build trust with customers, suppliers, and other stakeholders, who are more likely to do business with a company that operates with integrity.
Companies that consistently pay taxes on time are seen as more credible and reliable than those that do not. This can enhance a company’s reputation and make it more attractive to investors, lenders, and other stakeholders.
Supporting the Community
Paying taxes on time supports the community by funding essential government services such as healthcare, education and infrastructure. By contributing to the community in this way, companies can build goodwill and positive associations with their brand.
Avoiding Negative Publicity
Companies that fail to pay their taxes on time can face negative publicity, which can damage their reputation and lead to loss of business. This can be particularly damaging in the age of social media, where negative news can spread quickly and have a lasting impact.
Meeting Stakeholder Expectations
Paying taxes on time is an expectation of many stakeholders, including customers, suppliers, employees, and investors. By meeting these expectations, companies can build stronger relationships.
As commercial loan brokers in Perth we know that a business’s tax compliance record is taken into consideration by lenders when assessing the business’s creditworthiness and risk profile. Therefore, a business that has a history of paying its corporate taxes on time is generally seen as more creditworthy and may find it easier to secure finance compared to a business with a history of tax non-compliance.
When assessing a business’s creditworthiness, lenders often look at a range of factors, including the business’s financial statements, credit history, and tax compliance record. If a business has a history of consistently meeting its tax obligations, this can be viewed positively by lenders and improve the business’s chances of securing finance. On the other hand, if a business has a history of tax non-compliance, this can raise concerns about the business’s financial stability and repayment ability, potentially making it more difficult to secure finance.
However, it is important to note that tax compliance is just one factor that lenders consider when assessing a business’s creditworthiness. Other factors such as the business’s revenue, profitability, industry sector, and market conditions also play a crucial role in determining the business’s ability to repay any borrowed funds.
Access to Government Benefits and Services
In Australia, paying taxes on time is a crucial requirement for companies to gain access to various government benefits and services. The government provides a range of support programs and services to businesses that are registered for tax and meet their tax obligations.
If a company has a poor tax record or is behind on their tax payments, they may be ineligible for these grants and funding opportunities.
Furthermore, having a good tax record is often seen as an indicator of a well-managed business. This can improve a company’s reputation and make it more attractive to investors, lenders, and customers.
In summary, paying taxes on time is important for Australian companies as it helps them access government benefits, funding, and services. It also demonstrates a company’s financial stability and good business management practices.
Supporting the Australian Economy
When Australian companies pay taxes on time, they contribute to the overall health and stability of the Australian economy.
It may not necessarily make you feel warm and fuzzy, but here’s how:
Funding government services: Taxes are the primary source of revenue for the Australian government. When companies pay their taxes on time, they help fund essential services such as healthcare, education, infrastructure, and public safety. This, in turn, supports economic growth and helps create a stable and prosperous environment for businesses to operate in.
Promoting fairness and equity: Paying taxes ensures that companies contribute their fair share towards the cost of government services. This promotes fairness and equity in society, as those who benefit from government services contribute to their cost. Additionally, companies that do not pay their fair share of taxes create an unfair advantage over those that do, leading to a distortion of competition in the market.
Building investor confidence: Timely payment of taxes demonstrates a company’s financial stability and good corporate citizenship. As noted, this can build investor confidence and make the company more attractive to potential investors, lenders, and customers.
Supporting government initiatives: The government often implements initiatives to support economic growth, such as stimulus packages, infrastructure spending, and tax incentives. By paying taxes on time, companies support these initiatives, which can create opportunities for businesses to grow and thrive.
Benjamin Franklin wasn’t wrong – death and taxes are certain. So it’s worthwhile making sure you get your business affairs sorted to leverage good deals on finance and even access government grants and benefits. Get to work, because as old Ben points out, whether we’re dealing with the tax man or the grim reaper, our days are numbered.