From July 1, the Government will allow the Australian Taxation Office (ATO) to disclose a business’s tax debt information to credit reporting agencies. For businesses that have an unresolved tax debt, the implications of this can be disastrous.
The measure, which comes as the tax office is owed some $19 billion in overdue tax (including a sizeable $13 billion by small businesses with turnover up to $2 million), gives the ATO the authority to report tax debts where:
- the debt is for a taxpayer that has an ABN
- the debt amount is over $10,000 and unpaid for over 90 days
- the debt is not in dispute
- no payment plan has been established or an existing payment plan has defaulted
Once a credit reporting agency has been notified of the tax debt, the default becomes public record which may affect the business’s credit applications with banks, financiers and suppliers. If credit applications are declined as a result of the default, the viability of the business can be severely impacted.
The ATO had previously allowed companies to accumulate more than $345,000 in back taxes before taking legal action. This new ruling brings Australia in line with a number of overseas jurisdictions that have implemented, or are about to implement, measures that increase transparency of tax debts, with the UK, Ireland, Norway Finland and New Zealand publishing tax debt information on a public register or sharing it with credit bureaus.
Five tips for preparing your business:
- Ensure your accounting data entry is up-to-date.
- Bring all BAS or IAS lodgements up-to-date.
- If debts to the ATO are overdue, contact the ATO to discuss a repayment plan.
- If tax debts are in dispute, ensure there are open lines of communication with the ATO to resolve the dispute. The last thing a business owner needs is to be reported to a credit reporting agency for default on a non-existent debt.
- Ensure that the payment of all tax debts is factored into any cash flow forecast.
The key message for small business owners is to engage with the ATO when tax debts cannot be paid on time. Failure to do so before July 1 can have severe consequences.
If you need help preparing your Accounts or bringing your lodgements up to date before July 1, just email us or call us on 9887 8751.