ATO Tax Debts to be Reported to Credit Agencies
If you owe money to the ATO, this currently doesn’t appear on credit checks and hence won’t affect your ability to get finance. BUT this is about to change!
What is changing
The Government has announced that it will allow the Australian Taxation Office (ATO) to disclose tax debt information of businesses to registered credit reporting bureaus (CRBs). The ATO will only be able to disclose tax debt information of a business where certain criteria are met. These are:
- it has an Australian Business Number (ABN); and
- it has a tax debt, of which at least $10,000 is overdue by more than 90 days; and
- it is not effectively engaging with the ATO to manage its tax debt (i.e. doesn’t have a payment plan in place).
The ATO will notify a business if they meet the reporting criteria, advising that they have 21 days to respond before their tax debt information is reported to CRBs.
Why are they doing this?
The ATO is often seen as a ‘soft target’: debtors can avoid paying on time, can pay slowly and can consistently and easily default on their arrangements with seemingly few repercussions.
Providing information of overdue tax debts of a business to other creditors may influence the creditor’s decision whether to trade with the business or not. Would you supply goods to an organisation that can’t meet is ATO obligations? Who else do they owe money to and will they be slow in paying you too?
It also encourages businesses to engage with the ATO to manage their tax debts.
What will the impact be?
CRBs may include the tax debt information in their credit reports which are available for purchase by parties who wish to use this information to make an informed decision on the credit worthiness of a business.
Having a default on your credit rating will make it harder to obtain finance and trade accounts.
What should you do if you owe money to the ATO?
Businesses that are effectively engaging with the ATO to manage their tax debts will not have their tax debt information reported to CRBs. The definition of ‘effective engagement’ will be subject to public consultation, but it is expected to include businesses that have established a payment plan or are disputing their tax-related liabilities.
If you owe the ATO money here are two things to do before for this change is implemented:
- Arrange a payment plan with the ATO.
- If paying your bill is an ongoing issue, let us review your business to determine what can be done to improve its performance and minimise the future risk.