How to stay on the right side of the tax office and protect your business from compounding financial pain
As the CEO of Finch Financial, Julian Finch has seen more than a few small-to-medium business owners back themselves into a corner with the Australian Taxation Office (ATO). And in today’s post-COVID climate, the stakes are higher than ever.
Speaking with Paint & Panel, Finch warned that ignoring your tax obligations, particularly now, can put your business, and even your personal assets, at serious risk.
“In years gone by, you might have been able to ride it out,” he says. “But in their current mood, the ATO has lost patience.”
The danger of using the ATO as a bank
During the pandemic, many businesses leaned on government support and were granted leniency by the ATO, including payment deferrals and relief on business activity statements.
Some took advantage of the grace period to manage cash flow, using money earmarked for tax payments to fund operations.
But as Finch explains, the consequences of that approach are now being felt hard.
“Businesses effectively used their ATO obligations as working capital. Now the ATO wants that money back—and they’re being aggressive about it.”
To make matters worse, interest charged on overdue ATO debt - already around 11.8% - is no longer tax-deductible as of July 1. Once you factor in the lost deductibility and compounding, Finch estimates the effective cost of that debt can rise to around 20%.
Don’t dig a deeper hole
It’s easy for small operators to get caught out, especially when juggling erratic insurer payments, high overheads, and upfront parts costs.
“However poor your cash flow is,” Finch stresses, “you should not be dipping into your ATO money.”
Instead, he advises businesses to seek structured finance solutions—either from a broker or lender—to consolidate tax debt and spread repayments more sustainably.
“If you can secure a loan at 6 or 7%, that interest is deductible. And you’re not constantly looking over your shoulder.”
Common traps for small business owners
Aside from GST and PAYG obligations, Finch says many small business owners run into trouble by blurring personal and business spending.
“If you’re not paying yourself a set wage and just using the business card for personal items, your accountant has to unravel that mess at tax time,” he explains.
This can result in unexpected income tax liabilities or trigger compliance red flags.
Finch recommends keeping clear records, setting aside 10% of revenue for GST, and treating yourself as an employee when it comes to wages and pulling the relevant tax from each pay period.
“Otherwise, you get to the end of the year and realise you’ve got a personal tax bill you didn’t plan for.”
What is a Director Penalty Notice—and why should you care?
Perhaps the most sobering warning Finch offers relates to the ATO’s use of Director Penalty Notices (DPNs). These notices can make company tax debts a personal liability if lodgements are late or ignored.
“If you don’t lodge on time and don’t engage with the ATO, they can - and will -come after your personal assets,” Finch warns. “That includes your house.”
He cites a client who now owes $200,000 in personal tax debt after failing to respond to the ATO regarding his business obligations.
Communication is key
Finch’s number one piece of advice? Don’t stick your head in the sand.
“Engage early. If you can’t pay, talk to your accountant. If you don’t have one, talk to the ATO yourself,” he says.
Payment arrangements are available, and can be generous, but they require commitment.
“Once you're in an arrangement, the ATO expects you to stay on top of new liabilities as they arise. You can’t just forget about the next quarter.”
Thinking ahead
While the collision repair industry operates on tight margins and unpredictable cash flow, Finch believes that forward planning and professional support can make a big difference.
Whether it's consolidating tax debt through a finance broker, exploring invoice finance, or simply getting better bookkeeping processes in place, staying off the ATO’s radar should be a top priority.
“There are solutions. But once you’re in too deep, those options narrow fast.”
So, in short? Get ahead, stay transparent, and never assume the ATO will wait.
- About Finch Financial
Julian is happy for readers to contact him for a chat. For more information, visit www.finchfinancial.com.au or contact Julian Finch directly at julian@finchfinancial.com.au Direct Mobile: 0477 774 780.