New ATO Disclosure Rule
The Federal Government has announced that from 1 July 2017, the ATO will be given the power the disclose business tax debt information to a credit reporting bureau (CBR) for tax debt that is over 90 days old if the business has failed to engage with the ATO in regards to managing their debt. The taxpayer will be given 'reasonable' notice by the ATO that they will be disclosing this information to a CBR, in order to give the taxpayer time to engage with the ATO about their debt.
The ATO has suggested that it will only use these powers in the following instance:
- The taxpayer has an ABN
- Debt is over $10,000
- Debt is unpaid for 90 days
- Debt is not in dispute
- The taxpayer has not entered into a payment plan
- The taxpayer has not effectively engaged with the ATO in order to manage their debt
Please remember this is just a suggestion, and other businesses may still be effected by this new power.
The Federal Government's rationale for the proposed new powers is to:
- Reduce any unfair advantage which may currently exist for businesses that do not pay their tax on time
- Provide information to credit providers and other businesses to allow them to assess the risk of extending credit or terms of trade to taxpayers with unpaid tax debts
- Provide taxpayers with a strong incentive to engage with the ATO to address outstanding tax issues.
How will this effect the business if tax debt is disclosed?
If the ATO report a taxpayers unpaid tax debt to a CBR, this 'black mark' will be recorded on the taxpayers credit file, and will remain there for 5 years, and usually the only way to have this black mark removed is to prove the ATO was wrong, which even if successful could take months to establish. In addition, even if the tax debt is paid off at a later date, this note will still remain on the credit file for 5 years.
Having this information disclosed to a CBR is likely to have a significant negative impact on the reputation of the business and its directors, as it will mean other businesses will need to consider this tax debt when assessing risks involved with trading goods and services on credit and providing finance to the business. In some cases this may result in businesses having to wind up and be liquidated. Liquidating a business can cause severe financial problems to business owners and even directors of companies, as they may be personally liable in relation to the ATO debt.
How to avoid this issue
- Ensure all BAS & IAS are lodged and paid on time
- If your business has an overdue ATO debt, contact the ATO immediately to discuss a payment plan, this can be arranged with the help of DW Johns & Co staff or by the taxpayer
- If a tax debt is in dispute, communicate with the ATO to resolve the dispute
Keeping in contact with your accountant will also give you a big advantage in avoiding this issue, as we will be able to give you an up to date record of your outstanding lodgements and tax debts, as well as being able to liaise with the ATO to ensure this issue will not effect your business.