I have stable employment and earn $220,000 a year. Unfortunately, I made a poor decision to get involved in one of those investment schemes where you get tax deductions up front.
The tax department has since closed down this scheme and I now have to pay $180,000 to the ATO. I have 2 properties but there isn’t enough equity to refinance and pay the ATO.
I don’t want to declare myself bankrupt and would like to know what other options are available?
There is a great lesson here which you've learnt the hard way.
To answer your question, it's really hard to talk generally, but when you say refinance, are you meaning up to 80% LVR? In which case, selling 1 or both of the properties to access all the equity might be a good option.
Then, ask the ATO for a payment plan. With your income, you should be able to live very modestly and repay it very quickly (especially if the property sales can go a fair way to extinguish that debt).
Sorry to hear you are in trouble with the ATO.
What is the estimated total value of your properties and current debt owed on these properties?
Bankruptcy should be your absolute last option to take. Have you spoken to the ATO and asked if you can go on a payment arrangement? This may be a better option if you lack equity in your properties. Further to this; you may be able to negotiate a lower payout to the ATO if they know you are looking to pay in one lump sum. This may bring your debt down low enough to borrow against your properties.
Feel free to contact me on 1800 824 325 (Option 1) to chat further to see if I can assist further.
Graham Doessel - CEO - MyCRA (Specialist Credit Repair) Lawyers (LPH)
Current Rating: 4.65 / 5
Both Glenn and Sam have nailed it. To be able to help you (and I think you'll need to speak to a Broker, an Accountant, and an ATO Specialist.
You say the ATO says you have to pay $180,000. Sam and Glen both suggested a payment arrangement, which is a great start and will probably relieve some stress, and the question I want to ask you is - "Has the ATO taken any recovery action against you?"
If not, take action before they take action against you...
If you need to speak to a Taxation Law expert (just in case you might not actually owe the whole $180,000), let me know and I'll give you a personal introduction to the best Tax lawyer I know.
First thing to remember is the TALK TO THE ATO. A lot!!!!!!!
the ATO is NOT there to send you broke, or force you into bankruptcy. They are always willing to cut a deal which allows you to address the tax debt over time, rather than take you to court. its bad publicity for them, even when the debt is genuine they are seen as the bad guys.
the other thing to bear in mind is that it is almost certainly true that the reason you have two houses is at least partially due to the $180k that the ATO refunded you in the past, and they are 100% aware of this, so crying poor isnt gonna help.
sooooo, you need a payment plan. The ATO will be very happy to talk to you about this. And I will predict how the conversation is going to go......
ATO: Hi Marcus, you owe us $180k
MARCUS: yes, I do
ATO: can you pay the whole amount today?
ATO: can you pay 50%???
MARCUS: no, I dont have a pillowcase stuffed full of $50 notes
ATO: hmmmm, you need to pay this debt as soon as possible
MARCUS: yeah, no shit Sherlock. I have done a budget, and based on my income and expenses, I can afford to pay you XXXXX (this is where you have to figure out what the amount is you can actually afford. lets say $1500/week = $6000per month).
ATO: thats no good Marcus, it will take you almost 3 years to retire the debt at this rate
MARCUS: I know this, but its the most I can afford. I have a family and school fees and a mortgage and I have cut to the bone on this: my family is going to live on cat food and weet-bix for the next three years due to the actions of a shonk artist who gave me advice that I could employ a certain strategy, and I paid him a LOT of money for this advice. Turns out he was a) wrong and b) a fraud. And I am paying a heavy price for this shit advice offered by someone who is registered with the Tax Practitioners BOard....ie the ATO to give me this advice.......what are you doing about this individual? Has he been charged with any criminal offences? Have you removed his practicing certificate? Have you investigated his dealings with other poor suckers like me??????
ATO: thanks Marcus, $6000 per month will be fine. We cannot discuss the other issues. Privacy laws you know.
MARCUS: thanks ever so much
I have taken a bit of poetic licence here MArcus, but this is a common enough story. Bear in mind that you have been bent over and drilled hard by the piece of shit who gave you the crap advice. And as a result you WILL suffer a financial loss. You also have received a benefit from the scam, which is why the ATO is all over you now.
so here is what I would do if I were in your shoes:
1: get a decent accoutnant to go in to bat for you to help you negotiate a payment plan
2: find a solicitor and sue the pants off the advisor who put you in this position
3: make as many complaints as possible to as many bodies as possible about the advisor: eg accounting bodies that he might be a member of; bullshit dealer groups that he works under; Tax Practitioners Board; ASIC; etc etcetc
If this sounds like I have got up in my stirrups a bit here MArcus, it is because people like this who offer shit advice to people like you are the f%cking scum of the earth and are a scourge on my industry. They act with impunity, have no regard for professional and ethical conduct, and are largely immune from penalty, because the people like you who are being stitched up are too busy sorting out the mess to deal with them. GRRRRR!!!!
good luck with it mate. If you need a hand please contact me.
Thank you all for your advice. In regards the properties, both have a gearing above 90% so it is not an option to refinance.
I will take the advice and try to develop a payment plan with the ATO.
p.s – Brendan, I shared your answer with a number of friends …. we all agreed it’s nice to see someone being so honest and direct.
A little less colourful than BC, but he is certainly on the money. Unfortunately these tax minimisation schemes see the 'advisor' get a great commission up front, with little/no responsibility when the s*%t hits the fan.
While the ATO is like a dog with a bone, they are also reasonable when you communicate with them in a reasonable manner. It's not their fault that your in this predicament, so work with them to manage your way through. If there is interest and penalty amounts in that account balance, they might even review and reduce these.
A good accountant (CPA, CA) will assist you in liaising with the ATO and setting information for them to look at long term payment plan. It can be like doing a finance application, but you are effectively going for a short term loan.
And certainly check what options you have with the advisor that got you into the scheme.
One more tip for you Marcus.
Interest paid to the ATO IS deductible
Interest paid to a bank in respect of a tax debt ISNT
worth keeping in mind when deciding to whom you wish to pay interest.
Also if you can come up with a decent story to demonstrate mitigating circumstances (eg dodgy advisor) then the ATO will look at remitting the interest AFTER you have paid the debt.