Monday, February 20, 2017 2:30pm
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The Australian Tax Office (“ATO”) will now disclose small business tax debt information to credit reporting agencies.
The federal government’s Mid-Year Economic Fiscal Outlook (“MYEFO”) included a statement that from 1 July 2017 the ATO can disclose to Credit Reporting Bureaus the tax debt information of businesses that have not effectively engaged with the ATO to manage those debts. This new measure was announced by the Treasurer, Scott Morrison, when he released the MYEFO just before Christmas 2016.
The measure was announced against a background in which the ATOs latest annual report revealed that as at 30 June 2016 the total level of collectable tax debt was $19.2 billion. The ATO has been under pressure from the government to move faster to recoup ever mounting tax debts.Given that small business debtors make up the majority (65.2%) of tax payer debtors the ATO has indicated that they will be a “key area focus”. According to the ATO’s report, small businesses accounted for $12.5 billion of the total collectable debt and only 72.3% of small business tax liabilities were paid on time.
The ATO defines small businesses as those with a turnover under $2 million and its collection will be initially directed to businesses with ABNs and tax debts of more than $10,000 that are at least 90 days overdue.
Whilst disclosure of small business tax debt information to credit reporting agencies would probably be perceived by the general public and, possibly, some small business owners, as less draconian than the institution of legal proceedings, it has potentially serious consequences for a small business. Chartered Accountants Australia and New Zealand head of tax policy Michael Croker has warned that this new reporting measure has serious ramifications for a small business.
“In finance circles, telling credit reporting agencies about an unpaid tax debts is like putting an advertisement in the newspaper” he said. “It can make things difficult for future finance and supplier credit applications. This is a policy that needs to be implemented [by the ATO] with care.”
The Inspector-General of Taxation, Ali Noroozi, in his report into the ATOs management of debt owed, observed that “There is a difficult balance to strike between recovering tax debt efficiently and minimising risk to the government on the one hand, and providing appropriate financial accommodation to the tax payer on the other”.
The general message that seems to be emerging from representatives of and advisors to the small business community is probably summed up in a statement made by Peter Strong, chief executive of the Council of Small Business Australian:
“We support this, and they [ATO] will only take action if a business does not engage with the ATO”.
Presumably the Council takes the view that small businesses which do pay the tax debts on time should not be placed at a competitive disadvantage with those that do not.
It appears the ATO wishes to encourage owners of small business to approach it before their tax debts becomes unmanageable, which may have previously been the case when the ATO allowed companies to accumulate more than $345,000 in back taxes before taking legal action. This suggests that any business with an ABN and tax debts of more than $10,000 which are at least 90 days overdue should promptly engage with the ATO to try to achieve an acceptable solution for reduction of its outstanding tax debt.
Defaults being recorded on a tax payer’s commercial credit file will have immediate and lasting consequences for a defaulting tax payer. A credit default is a black mark that lasts for 5 years and creates an environment where support for finance may be withdrawn and supplier credit stopped.
The key to managing outstanding debts is to seek advice at an early stage because, as time passes, your options become more limited. If you need some help in dealing with the ATO or any one else about an outstanding debt, we at Rossi Legal have commercial law solicitors who can provide you with guidance about your options and represent you in negotiations with your creditors.