Tax Debt Loans in Australia
Using assets as security against loans to pay tax debt can substantially reduce your monthly borrowing costs. This article will look at several examples, how a private mortgage manager helped, and why you shouldn’t put up with expensive unsecured loans for tax debt.
Having a tax debt payment plan in place doesn’t need to prohibit your business from accessing cost-effective loans for tax debt. While paying a significant tax debt can be challenging, reducing your ongoing costs can be the catalyst for getting through the period more quickly.
However, unsecured tax debt loans in Australia can be expensive. At Prudential Custodians, we find better ways to pay off loans to pay a tax debt. For some, that could entail using secured tax debt consolidation loans. However, no matter your tax debt situation, a private mortgage manager can often help you use assets and property equity to reduce cash flow challenges and source better loans for tax debt.
Tax debt loans in Australia
During the last few years, challenging trading circumstances have resulted in more and more Australian businesses being saddled with tax debt. While an ATO payment arrangement might provide a lifeline for some asset-poor companies, they’re rarely an optimal solution if your organization has plant, machinery, or property assets.
Prudential Custodians has helped many Australian companies with tax debt loans in 2021 and 2022. Though circumstances can vary, solutions typically rely on leveraging the equity in everything from business assets to commercial property and even residual stock in building projects.
Even in circumstances where companies don’t have sufficient equity or assets to secure borrowing for the whole of tax debt, we can still typically help reduce payment plans or tax debt loan repayments substantially. That can also ease ongoing ATO sanctions like tax debt penalties.
Below, we’ve assembled four different case studies that illustrate how Prudential Custodians help other clients in various situations with tax debt. We take a holistic view of not just your debts and challenges but also the positives about your business. For some, that equates to a cash flow difficulty during a booming property development sector. For others, it could be the challenge of successfully accelerating manufacturing after the lows of a protracted pandemic. Whatever your situation, here at Prudential Custodians, our mission is to help Australian businesses use their strengths and advantages to power growth and recovery.
Using the equity in residual stock as security against loans for tax debt
Sometimes, the difference between cost-effective and prohibitive, expensive finance options is how banks look at borrowers. For many businesses like property developers, much of their capital is tied up for long periods during construction, leading to cash flow problems that compound issues like tax debt.
At Prudential Custodians, we believe in horses for courses when it comes to financing. Solutions should match the strengths and challenges of individual businesses, sectors, and clients. Loans for construction and property development need to be tailored to projects and serve the needs of builders and investors. That’s why when an experienced Victorian property developer contacted us to find a solution to significant tax debt; we knew exactly what to do:
Tax debt loans in Australia: Case study 1
Prudential Custodians had a call for help from an experienced property investor in Victoria. Events had conspired to leave the developer in a slightly sticky and costly situation with the ATO. Business in Melbourne was booming, with one apartment development nearing completion and a lucrative new housing development having just been confirmed with a DA.
At the same time, the client had recently entered into a $500,000 tax debt arrangement with the tax office. The debt’s service cost significantly impeded the developer’s ability to close out their current development and move to a new site.
As an experienced property development mortgage manager, Prudential Custodians took a look at the developer’s books, but we also assessed the ongoing apartment development in Melbourne. The developer had used a construction loan from the bank, which was close to maturing as the finishing touches on the project were being completed. The bank had issued notice for a final repayment, which was the root cause of the developer’s current problems.
The original construction loan from the bank was based on total development costs (TDC), and the lender had advanced 70% of TDC at various stages during construction. That caused several delays during the project – after site clearance, framing, and lock-up – while the developer waited for the bank to arrange mandatory inspections. In addition to a TDC-based construction loan, the bank had also specified 50% pre-sales. Between the subsequent marketing and sales efforts delaying the start of the project and ongoing delays during the build, the developer now found themself with a tax debt the proceeds from final sales could have helped them cope with. Despite the bank’s involvement in things spiraling out of control, they refused to extend construction finance.
With the bank deadline looming and the developer’s new project under threat, Prudential Custodians was able to arrange a loan based on the gross realization value (GRV) of the developer’s existing scheme. With six apartments completed and yet to sell, the developer was sitting on end value equity of $4.8M, and he was able to pay off the $500,000 ATO debt entirely while accessing funds to get started on a new project, which would have zero requirements for pre-sales, drastically improving expected return on investment.
Using assets to secure loans for tax debt
Even if you don’t have access to real estate or property development equity, your business may be able to reduce the costs of paying a tax debt loan from the bank or servicing an expensive ATO payment plan.
Even though many companies are cash-poor, they may still hold sizeable and valuable assets in machinery, vehicles, or heavy construction or agricultural plant, for instance. Where that’s the case, it’s possible to use support for secured tax debt loans. Doing so is typically significantly more cost-effective than using unsecured finance for tax debt because the lender’s risk is lower.
Using assets to secure tax debt loans attracts a slightly higher interest rate than if you use property equity to ensure tax debt borrowing. Still, it remains a far cheaper method than unsecured loans or payment plans, and you can also adjust the finance term to match your business goals. Here’s how Prudential Custodians helped a civil contracting company in Sydney with a tax debt:
Loans to Pay Tax debt: Case study 2
With substantial tax debt, Prudential Custodians recently helped a civil contracting business in Sydney. The company found itself cash-poor during an upturn in business and with several significant projects underway.
With a tax debt of $800,000 under an ATO payment plan, the business was enduring substantial costs while trying to service the debt and run several projects in the greater Sydney area. After the bank heaped on the pressure by withdrawing financial support and calling in a maturing commercial construction loan, the company contacted Prudential Custodians for assistance.
We examined the business, directors, and several valuable assets in civil contracting machinery. After a thorough investigation, we cleared out the bank borrowing, removing some of the pressure on the company directors. Our private mortgage managers then expertly assessed the company’s needs regarding ongoing construction work in the Sydney area.
We were also pleased to raise an additional $500,000, which allowed the contractor to reduce their tax debt arrangement with the ATO and maintain their ongoing commitments. The company renegotiated the lower sum over two years with the ATO, further reducing pressure on cash flow and enabling them to continue tendering for valuable contracts.
Using Equity in Commercial Property to pay a tax debt
Many businesses experience cash flow problems caused by ongoing tax debt arrangements with the ATO. The costs of servicing costly payment plans can even scupper revenue, as one of our Sydney clients found out after experiencing a challenging time during the COVID-19 pandemic:
Tax debt loans in Australia: Case study 3
One of our clients is a construction materials manufacturer based in Western Sydney. After challenges during the worst part of the COVID-19 crisis, the client found a significant ATO debt and a very costly payment plan that was inhibiting its chance to take advantage of a dramatic upturn in demand following the removal of pandemic restrictions.
The total debt to the ATO was $700,000, and the manufacturer was paying substantial monthly fees to service the two-year payment plan. They needed to expand their manufacturing facility in Western Sydney and had always planned so. Both the land and a current DA were in place. However, with the burden of a costly tax debt arrangement, the company couldn’t proceed. One of their biggest, long-term clients – a major house-building firm in Queensland – needed increased numbers of products. Supplier and buyer had arranged to ramp up production over three years, but that relied on the manufacturer completing a factory expansion within eighteen months. With plans for growth in jeopardy, the customer threatened to take their business elsewhere.
The manufacturer contacted Prudential Custodians and asked our mortgage manager to find a solution to reduce the tax debt payments. Fortunately, we were able to go further than that after identifying considerable equity in the company’s commercial property. That consisted of a large factory and a sizeable adjacent office block, which formed the business headquarters. Allowing the manufacturer to gain access to the commercial property equity meant Prudential Custodians could arrange finance to clear the company’s ATO debt. We were also able to secure construction finance to get the manufacturing facility expansion underway.
With the manufacturer’s client now satisfied construction was on target to allow a ramp in production over the crucial period, our client was able to take full advantage of the upturn in building activity after the pandemic while reducing the cost of paying the tax debt significantly.
Tax debt consolidation loans: Using the equity in personal property to pay a tax debt
Many of our clients find themselves with significant tax debt, and even though they’ve managed to arrange a payment plan with the ATO, such unsecured arrangements can be costly. While you may not have plans to expand a business or start a new project when you’re in tax debt, you can significantly reduce monthly outgoings by using personal property equity as security against a tax debt loan. Here’s how that worked for one Prudential Custodians client:
Loans to Pay Tax Debt: Case study 4
Our client was a doctor with a thriving practice in Melbourne. They contacted Prudential Custodians after amassing a tax debt of $250,000 and asked us to find a more cost-effective alternative to a one-year ATO payment plan.
Upon investigation, our mortgage manager identified that, although the client had a relatively large mortgage on their home in Melbourne, they also owned a beach house in Southeast Victoria and held significant equity in the property.
By arranging secured tax debt finance against the Southeast Victoria beach house, Prudential Custodians raised $250,000 to fully repay the tax debt and reduce the client’s monthly tax debt costs by over 40%.
