ATO Tax Debts Causing Grief

On October 22, 2019 the Government passed a law allowing the Australian Taxation Office (ATO) to notify credit reporting bureaus of outstanding ATO debts.

You may recall we posted about this back in August when the Bill was presented to Parliament.

The new legislation provides the ATO with the discretion to disclose to credit reporting bureaus when a business has a debt of $100,000 with the ATO for 90 days or more.

Why is the ATO now reporting tax debts?

The ATO seeks to encourage businesses to engage with them to manage their tax debts. They are keen to work with businesses to enter into a payment plan that is sustainable for the business, while still working towards having the debt paid off.

Also, assistant treasurer Michael Sukkar says: “This will reduce the unfair advantage obtained by businesses who do not pay their tax debts and will encourage businesses to engage with the ATO to manage their tax debts.”

Who will be targeted?

The ATO has set four key criteria for assessing whether a debt will be referred to bureaus:

1. it has an Australian business number (ABN), and is not an excluded entity
2. it has one or more tax debts, of which at least $100,000 is overdue by more than 90 days
3. it is not effectively engaging with the ATO to manage its tax debt, and
4. the Inspector-General of Taxation is not considering an ongoing complaint about the proposed reporting of the entity’s tax debt information.

Will it be a hard and fast rule?

It’s unlikely this would be a hard and fast rule – the key word above is “discretion”.

Businesses who are engaging with intent with the ATO to manage their tax debts will not have their tax debt information reported to the Credit Reporting Bureau’s.

How will this decision impact your business?

Credit reporting bureau CreditorWatch says: “By (the ATO) disclosing this information, the default would be visible on a commercial credit report and the credit scores of companies could be negatively affected.

Having your tax debt reported to a bureau will impact your ability to arrange finance for your company requirements.

It might it deter clients from dealing with you and could give your suppliers cause to alter their payment terms based on this now readily available information.

Don’t risk it, your reputation isn’t worth it.

This might apply to me – what are my options?

If this applies to your business, don’t bury your head in the sand.

First, get in touch with the ATO, which is encouraging businesses to engage with them to manage their tax debts. The ATO offers sustainable payment plans agreed upon by both parties. Small-businesses may be eligible for interest-free payments on BAS debts.

Also, if you have been hit by a natural disaster or are experiencing hardship there are options available.

Speaking with the ATO first is absolutely step one. Being upfront and honest about your situation and clear about what you can reasonably undertake to pay back will set you on your way to paying off your debt and not having the whole world know about it.

That said, not everyone enjoys the ATO impatiently hovering over their shoulder waiting for them to pay off their large tax debt.

If you’re one of those people, it’s definitely worth getting in touch with us to explore other options like short term lending to clear the debt.

Short term lending can take out your tax debt and possibly incorporate other short-term debts you have to roll them into one manageable payment.

Contact us to find out how we can help you take action for your business. Don’t put it off any longer.

Top tips for managing your tax obligations

1. Lodge your tax documents on time
2. Pay your tax obligations on time, or communicate with the ATO to arrange a payment schedule
3. Speak with your Accountant to arrange a schedule for completing tax work and stick to it
4. As you make your sales, set aside your GST portion in a separate account. This helps you keep track of it and makes it trickier to accidentally spend!

Disclaimer: The content of this article is general in nature and is presented for informative purposes. The article is not intended to constitute financial advice, whether general or personal, nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.