BAS debt, and how to catch up

Most BAS debt is not a spending problem. It is a timing problem that hardened. The GST you collect sits in your account for up to three months before it is due, and the tax withheld from your employees sits there with it. On a good quarter that money looks like working capital. It is not. It is money you are holding on behalf of someone else, and on the due date you have to find it again.

Once one quarter is short, the next quarter has to carry two. That is the whole mechanism. Nothing about it requires bad management. One slow debtor, one quiet December, one piece of equipment that failed early, and the sequence starts.

What a BAS actually carries

• GST collected on sales, less the GST credits on your purchases.
• PAYG withholding, which is tax already deducted from your employees’ wages.
• PAYG instalments toward the entity’s own income tax for the year.
• Depending on the business, fuel tax credits, wine equalisation tax or luxury car tax.

Those components matter later, because two of them sit inside the director penalty regime. A BAS balance is not one uniform lump. Part of it can become personal, and knowing which part changes what you do first.

• Failure-to-lodge penalties accrue for each period a statement is late and scale with the size of the entity. They stop the moment you lodge.
• Payment plans generally require lodgements to be up to date. An unlodged statement can rule you out of the arrangement you are ringing to request.
• Where you do not lodge, the ATO can raise an estimate of the liability. Defending an estimate is harder and slower than lodging the real figure.
• A lender cannot fund a number that does not exist. Unlodged activity statements are the most common reason a tax debt refinance stalls at credit assessment.

Jul–Sep quarter

28 October

Oct–Dec quarter

28 February

Jan–Mar quarter

28 April

Apr–Jun quarter

28 July

Quarterly statements are generally due on 28 October, 28 February, 28 April and 28 July, with the December quarter given extra time over the holidays. Lodging through a registered agent usually attracts a further concession. If cash is the reason a statement has not gone in, say that to your agent and lodge anyway.

The general interest charge applies to unpaid tax from the day after the due date. It is calculated daily and it compounds daily. Compounding daily on a balance that grows again every quarter is a different shape of curve to a fixed monthly interest bill, and it is why a balance that felt manageable in March can feel immovable by November.

General interest charge

Interest on unpaid tax, calculated daily and compounded daily from the day after the due date. Usually shortened to GIC.

Shortfall interest charge

Interest applied where an amended assessment increases what you should have paid for an earlier period.

Remission

The ATO reducing or removing an interest charge on request. Discretionary, decided case by case, and never something to build a plan around.

Integrated client account

The ATO account that carries your activity statement amounts. It is separate from the income tax account, and the two can move in opposite directions.

The rate is set each quarter by a published formula and it moves. We are not going to quote it here. Look it up on ato.gov.au before you make a decision that turns on it, and ask your accountant to show you the charge as a dollar figure per month rather than as a percentage. The dollar figure is the one that changes behaviour.

Remission is possible but it is not a right. You can ask the ATO to remit the general interest charge, and it will weigh what caused the delay and what you did about it. It is decided case by case, and a registered tax agent is the right person to prepare the request. Do not build a plan on the assumption it will be granted.

That last row deserves a minute of your time. Moving unsecured tax debt onto the family home converts a business problem into a housing problem if trading does not recover. It is frequently the right call, because the alternative is a compounding charge and a collections process. It is never a small one, and any broker who treats it as routine paperwork is not doing the job.

• Not lodging because the money is not there. This is the expensive one, and it is the easiest to reverse.
• Agreeing to a plan sized to what was asked for rather than what the business can pay every single month.
• Paying last quarter’s instalments with this quarter’s GST. The hole moves; it does not close.
• Waiting for the annual financials to be finished before dealing with a quarterly problem.
• Applying to four lenders in a fortnight and leaving four enquiries on the commercial file.
• Filing a director penalty notice in the pile to read on the weekend. The clock on it runs from the date on the notice.

Refinancing a BAS balance makes sense when the business is fundamentally sound and the debt is the residue of a bad period rather than the symptom of an unprofitable one. The test is simple to state and uncomfortable to answer: at current trading, can the business meet a fixed monthly repayment and still pay each new quarter as it falls due.

• There is equity in property, or business assets a lender can take security over.
• Lodgements are current, or can be made current inside a few weeks.
• The plan the ATO has offered is larger than the business can sustain.
• A director penalty notice or a garnishee notice has already appeared, which changes the timeframe entirely.

Where the answer to the serviceability question is no, finance is not the tool. That is the point at which an accountant and, if it comes to it, a registered insolvency practitioner give better counsel than a broker does. We will say so rather than write an application we do not believe in.