ATO debts may affect your credit rating

Generally, only businesses with an ABN and debts over $100,000 and that are not “effectively engaged” with the ATO will be affected. Practically, the ATO is planning a phased implementation which will consist of education before targeting companies, followed by partnerships, trusts and sole traders.

The ATO now has another “stick” in its arsenal to get businesses to engage with it and manage outstanding tax debts. Laws have recently been passed that allow the ATO to disclose tax debt information of businesses to registered credit reporting bureaus (CRBs).

The aim of the laws, according to the government, is to encourage more informed decision-making within the business community by making large overdue tax debts more visible, and to reduce the unfair advantage obtained by businesses that do not pay their tax on time.

The disclosure of these debts has the potential to affect the credit ratings of businesses and their ability to refinance existing debt, but only businesses that meet certain criteria will be subject to this new disclosure rule. The criteria are as follows:

• The business has an ABN and is not an excluded entity (ie is not a deductible gift recipient, registered charity, government entity or complying superannuation entity).
• The business has one or more tax debts, of which at least $100,000 is overdue by more than 90 days.
• The business is not effectively engaging with ATO to manage its tax debt.
• The Inspector-General of Taxation is not considering an ongoing complaint about the proposed reporting of the business’s tax debt information.

When a business meets these criteria, the ATO is required to notify the business in writing and allow 28 days for the business to engage and take action before any debt is disclosed. Tax debt information will only be provided to CRBs that are registered with the ATO and have entered into an agreement detailing the terms of reporting.

According to the ATO, an entity’s tax debts for the purposes of the disclosure rule includes income tax debts, activity statement debts (eg GST, PAYG withholding), superannuation debts, FBT debts and penalties and interest charges. An entity is considered to be effectively engaged with the ATO in respect of a tax debt if it:

• has a payment plan in place and is meeting the terms of the payment plan;
• has an active objection against a taxation decision to which its tax debt relates;
• has an active review with the Administrative Appeals Tribunal (AAT) or an active appeal to the Court against a decision to which its tax debt relates;
• has an active reconsideration of a reviewable decision which may affect the quantum of a non-complying super fund’s tax debt with the relevant regulator;
• has an active review with the AAT of a reviewable decision which may affect the quantum of a non-complying super fund’s tax debt; or
• has an active compliant lodged with the Inspector-General of Taxation in relation to the tax debt that is, or could be, the subject of an investigation.

The ATO’s practical approach to disclosure of tax debts consists of a phased implementation approach, with the initial phase focusing on raising community awareness of the measure through newsletters, articles, forums and speeches. After the initial phase, it will begin firstly with companies that meet the disclosure requirements before moving onto other entities such as partnerships, trusts and sole traders with ABNs.

For assistance please contact your Mazars advisor or alternatively. 

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.

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Source: www.ato.gov.au/General/New-legislation/In-detail/Other-topics/Disclosure-of-business-tax-debts/; www.ato.gov.au/General/Gen/Consultation-paper--ATO-s-approach-to-disclosure-of-business-tax-debts/.