Under laws passed in late 2019, the Australian Taxation Office (ATO) has the power to report your business’s outstanding tax debts to Credit Reporting Bureaus (CRB). They haven’t used this power since debt recovery action was paused during the COVID-19 pandemic. However, the ATO has started sending businesses notification of intent to start reporting their outstanding tax debts to CRBs.
Broadly, any person or entity who satisfies all of the following criteria is at risk of their tax debts being reported to CRBs:
- 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 intent is to give a stern motivation to engage with the ATO to deal with outstanding debts in a timely manner. The other goal is 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.
Whether or not to report is at the ATO’s discretion. They have noted that they won’t report in “exceptional circumstances”, which may include family tragedy, serious illness or natural disasters.
Warning letters being issued
The ATO has started issuing warning letters stating their intent to report outstanding tax debt information to CRBs unless the business starts engaging with the ATO within 28 days to manage their debt. This comes at a difficult time, with businesses enduring the impact from much of the country experiencing lockdowns. Having said that, debts under a compliant payment arrangement will not be reported. So, the key is engaging with the ATO to resolve a pathway for getting on top of the debt.
Consequences of being reported
Being reported could compromise your business’s ability to secure new finance or supplier credit. But it could also cause issues with existing finance. If outstanding tax debts were not disclosed when applying for that finance, that might amount to having made a false declaration to a lender. Or it might 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.
Next 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. Talk to your trusted Nexia Advisor about how we can help.
Article by David Montani2021
