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As major tax deductibility changes loom, brokers have an opportunity to “get on the front foot” with SME clients, according to industry leaders.
Small businesses and brokerages are being urged to get across their tax planning ahead of new rules coming into effect from 1 July.
New Australian Taxation Office (ATO) payment plan rules will mean that small and medium-sized businesses (SMEs) can no longer claim tax deductions for the general interest charge (GIC) or shortfall interest charge (SIC).
That could drive up the cost of managing tax debt and exacerbate cash flow pressures for many businesses unless alternative options are considered.
Tax pressures are a growing concern for many businesses, with total collectable debt standing at $53 billion on 30 June 2024, while insolvency debt increased from $11.3 billion to $14.3 billion over the year, the highest growth rate since 2011, the ATO recently said.
Noting the changes, Siobhan Williams, head of mortgages at non-bank lender Pepper Money, encouraged brokers to be proactive and work with their SME clients and their accountants to ease tax pressure.
“These [rule] changes have left many business owners worried about their financial future,” she said.
“As tax pressures mount, it is crucial for brokers to proactively support their business clients and educate them on the options available to help manage their obligations.”
Williams said that non-bank lenders were well-placed to support SMEs.
“One key offering from non-bank lenders is the ability to refinance debt, including those owed to the ATO. This includes offering higher loan-to-value ratios (LVRs) and providing alternative assessments of business income and assets,” she said.
“These flexible criteria can enable business owners to secure finance when traditional lenders are unable to meet this need.”
Similarly, ScotPac CEO Jon Sutton recently said the loss of tax deductibility would make ATO payment plans a very expensive option for businesses.
“Business owners with an ATO payment plan – or those considering applying for one – must understand the impact of these new rules and the options available to them,” Sutton said.
He said that businesses may need to explore financing alternatives like business loans that act as a line of credit, invoice finance, or asset and equipment refinancing.
The interest payable on these types of loans would remain tax-deductible after 1 July, Sutton said.
“I urge any business owner with an ATO payment plan or a looming tax debt to talk with their key advisers about available options ahead of these new rules coming into effect on 1 July,” Sutton said.
‘Opportunity to get on the front foot’
Williams said that brokerages needed to act before regulatory tax changes kick in.
“Brokers have an opportunity to get on the front foot and encourage their business clients to act now before the change takes effect 1 July,” she said.
“Together with a tax professional, help your clients navigate whether paying off tax debt with a loan is appropriate for their situation.
“Find a lender with loan options that allow customers to consolidate their ATO debt, enabling them to potentially place the debt on their balance sheet and claim deductions.”
Williams urged business owners to seek out specialised credit advice, including on the most suitable lending products, review outstanding debts, and consider options aside from refinancing.
[Related: Calls rise for government to fix SME ‘cash flow crunch’]
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