How can company debt impact your warranty insurance?

 

Insolvencies are on the rise, with the tax office chasing more than $34 billion worth of small business and self-employed debts in 2024 alone. According to CreditorWatch, Hospitality is still experiencing the highest business closure rates – reporting more than 9% of hospitality businesses closing in March alone – and Construction among the top five with 5.7%.

With invoice payment defaults up by 42% YoY, it’s not surprising and our business advisors are getting more enquiries from our Building and Construction clients who are feeling the cash flow pinch.

What should you do if you find yourself in debt, and how could this impact your wider business? Other than being put on a creditor watch list, your debt could start to impact areas such as your warranty insurance.

In this blog, our business advisory team will answer common company debt FAQs and share proactive steps you can take to reduce company debt risks.

 

Who has access to your company debt information and where can it be published?

Debt can come in all shapes and sizes, and it can be easy for businesses to find themselves in a debt-heavy situation. There is tax debt associated with any outstanding ATO lodgements as well as debt associated with other creditors or suppliers.

While not all debt is reported or publicly available, there are cases where the ATO may disclose your company debt information to credit reporting bureaus (CRBs) – such as CreditorWatch, Equifax Australia, and Illion Australia.

For your debt to be reported, your business needs to meet a certain criteria.As well as having an Australian Business Number (ABN), your business needs to:

• Have one or more debts of $100,000 and above (overdue by more than 90 days)
• Not be engaged with the ATO to manage your company debt
• Not have an active complaint with the Inspector-General of Taxation Ombudsman (IGTO)

 

The good news is, if you’ve engaged with the tax office your debt is not reported, and any of the below are considered engagement with the ATO.

• Complying with an agreed ATO payment plan with the ATO
• Have applied for a tax debt release
• Have raised an objection against the tex decision
• Are engaged in an active review with the Administration Review Tribunal (ART) or an active appeal to the Court, including an active review of their reviewable decision

 

Any active complaints with the IGTO are also considered ATO engagement and will exclude your debt from being reported.

Haven’t started your engagement process? Eligible businesses will be reported to CRBs and your debt will be visible on credit rating checks and credit reports. But before your debt is recorded or disclosed, you will receive a written notice from the ATO.

 

Can reported debt impact warranty insurance?

This information can impact more than simply your credit rating, with any of your suppliers, vendors and other businesses being able to view this information through credit reports and creditor groups such as CreditorsWatch.

For builders, tradies and construction groups, this has additional impacts. Reported debt can risk warranty limits and your ability to issue warranty insurance. It can also increase compliance requirements on this insurance.

 

What to do if you receive a disclosure notice of intent or Director Penalty Notice from that ATO?

In October last year, the ATO revealed it had issued more than 22,000 intent to disclose notices to Australian businesses. Since then, this has grown to 31,000 issued instances across the nation. 

For companies with directors, the ATO may issue a Director Penalty Notice. These notices are issued for companies that are personally liable for Pay As You Go Withholding (PAYGW) tax, Goods and Services Tax (GST), and Super Guarantee Charge (SGC). Once the Director Penalty Notice is issued, you have 21 days to pay the penalty in full or engage with the ATO to negotiate a relevant payment plan.

Receiving these notices can be a confronting experience, and can leave you feeling cornered without many options. The key here is to get in contact with the ATO as soon as possible and start the engagement process.

Feeling lost and not sure what to do next? Contact us to start the process. Our experienced business advisors can step you through the process and get you back on track.

 

How to get yourself debt unstuck

For many businesses, tax and company debt can be overwhelming. Some business owners put their heads in the business sand (hoping it will sort itself out when ‘business gets back on track’) and others go into panic mode – resulting in decision paralysis, where every decision feels too much.

If you are (or have) experienced any of the above, you’re not alone. As business advisors, we’ve seen and worked through it all. The key to managing your debt isn’t taking big actions, but rather taking strategic steps to debt management.> 5 steps to manage your debt

 

Facing high amounts of debt?

Working through with your business advisor, you can get tailored advice on next steps, actions you need to take, and any business changes you might need to consider. And if your debt is already reported? That first step is contacting the ATO to start your engagement.

To reduce future debt risks, getting a better understanding of your business’ financial health and risks is essential. Regular business health checks can be a great way to get clarity into your business and allow you to make manageable, staged improvements on your debt journey.

 

Debt slowly beginning to grow?

Managing debt can impact more than your cashflow and operations. While debts under $100,000 will not be reported to credit reporting agencies, any amount of rising debt can be crippling financially and mentally.

Working alongside our business advisory team, you can put a manageable plan in place to work through your tax debt and get your business back on track. Some techniques used by our business advisors might include restructuring your business, using business health checks and operational reviews to uncover profit opportunities, or leveraging cashflow and forecasting insights to get more understanding of your business day to day.

Using this information, business advisors can create a personalised plan for your business with strategic, staged steps to reduce your debt over time.