Oct 03, 2019 / News

Business Consulting / Taxation

Your outstanding tax debts: Exposed for everyone to see

A Bill before Parliament, which will likely pass, will permit the ATO to report your outstanding tax debts to Credit Reporting Bureaus (CRB).  Some might instantly see a problem this would bring upon them, but more on that shortly.  The Bill really only removes a prohibition on disclosing this information, and sets out notice requirements, but otherwise gives the Assistant Treasurer the power to declare exactly whose tax debts can be reported.

The Assistant Treasurer has issued a draft declaration setting out who can be subject to reporting.  Broadly, it’s any person or entity who satisfies all of the following criteria:

• Has an Australian Business Number (ABN).
• Has one or more “tax debts” totalling $100,000 or more, each of which is more than 90 days overdue. 
• Does not have an active complaint in progress with the Inspector-General of Taxation.

“Tax debts” includes all outstanding amounts owing to the government, such as income tax, GST, PAYG withholding, superannuation guarantee, penalties and interest.  The $100,000 threshold was originally proposed to be a considerably smaller $10,000.  The threshold can be changed without requiring approval from Parliament, so it may well be reduced once things are bedded down.

It’s easy to see that this policy is a nudge (or more like a hard shove) to encourage engagement with the ATO to deal with outstanding debts in a timely manner.  It also seeks to curtail the unfair financial advantage some businesses gain over others that pay their tax debts on time by using the ATO as a pseudo-source of overdraft funding. 

Exceptions

Certain types of entities are exempt from being reported, such as superannuation funds and charities.  For all other entities, certain tax debts will be ignored when measuring whether the $100,000 threshold is reached.  Such excluded tax debts include those under a payment arrangement that is being complied with, debts in respect of which an Objection has been lodged, and debts subject to a Tribunal or Court process.

Will they or won’t they?

Where the above reporting criteria are met, the ATO is permitted to report to CRBs, but isn’t required to.  In other words, it entirely at the ATO’s discretion.  However, to provide certainty, the ATO has issued a draft consultation paper – which doesn’t say when they will report, only when they won’t.  They won’t report in “exceptional circumstances”, which may include family tragedy, serious illness or natural disasters. So, it’s fairly certain that unless those exceptional circumstances apply, your tax debts will be reported.

Heads up

Under the Bill, the ATO is required to give 21 days’ notice that your tax debts will be reported.  The Bill is currently before the Senate, where a Centre Alliance crossbench Senator has proposed amendments, including that the entity’s tax agent must also be given the heads up, and increasing the notice period to 42 days.  These are good suggestions.  The ATO also stated in their paper that they will phone you before reporting.  So really, especially if those amendments are agreed to, it should not come as a surprise to anyone to discover their tax debts having been reported.

Which CRBs?

The ATO will report only to CRBs who have registered with the ATO for this purpose.  There are four main CRBs operating in Australia (see here, here, here and here), and I presume all will register. 

When being reported might cause you grief

There are probably two main kinds of circumstances where being reported might negatively impact you.  The first is when applying for new finance or supplier credit.  Having a significant outstanding tax debt that you are apparently ignoring might scuttle your perceived creditworthiness.  The second relates to existing finance.  This is that problem some might foresee for themselves.  Omitting to disclose outstanding tax debts might amount to having made false declarations to a lender, or otherwise alert the lender to a breach of debt covenants, giving them the right to call in the loan.  That could not only compromise a business’s viability, but also expose company directors to personal liability for company debts. 

Serious stuff.   

Nexia Edwards Marshall can help

If you find yourself at risk of your business’s outstanding tax debts being reported to CRBs, the solution is to meaningfully engage with the ATO.  Your trusted Nexia Edwards Marshall advisor can help – it’s what we do.

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.