Small business tax debts to be disclosed by ATO
In its mid-year economic and fiscal outlook, the Australian Government announced that it will allow the Australian Taxation Office (ATO) to disclose tax debt information of businesses that have ‘not effectively engaged with the ATO’ to credit reporting agencies from 1 July 2017.
Initially, this measure will apply only to businesses that have:
- an ABN, and
- tax debt of more than $10,000 that is at least 90 days overdue.
While the ATO does not currently provide this information to credit reporting agencies, the Government has stated that “businesses are expected to pay taxation debts in a more timely manner to avoid affecting their credit rating”.
We suspect this new power will be applied by the ATO on a discretionary basis, however, it remains to be seen how widely the ATO will use their discretion. Either way, the adverse impact for a business that is reported can be serious.
Once a credit reporting agency has been notified of the tax debt arrears, the default becomes public record which may affect the business’s credit applications with banks, financiers and suppliers. If credit applications are declined as a result of the default, the viability of the business may be impacted and insolvency could follow.
Five tips to be prepared in five months
Here are five tips to help business owners prepare for these new powers, which become available to the ATO in just five months.
1. Ensure your accounting data entry is up-to-date. Engage a bookkeeper or accountant to assist, if necessary.
2. Bring all BAS or IAS lodgements up-to-date.
3. If debts to the ATO are overdue, contact the ATO to discuss a repayment plan. Seek assistance from your accountant, if necessary. Silence will become the business owner’s worst enemy.
4. If tax debts are in dispute, ensure there are open lines of communication with the ATO to resolve the dispute. The last thing a business owner needs is to be reported to a credit reporting agency for default on a non-existent debt. The avenues of appeal for a business owner facing this scenario are still unclear.
5. Ensure that the payment of all tax debts is factored into any cash flow forecast.
The key take away message for small business owners is to engage with the ATO when tax debts cannot be paid on time. Failure to do so may expose the business owner to severe consequences from 1 July 2017.
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