Businesses with tax debts beware, the ATO will now be able to disclose the details of your tax debts to credit ratings agencies, which could potentially affect the ability of the business to obtain finance or refinance existing debt. Generally, only those businesses with an ABN and debts over $100,000 and 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 Tax Office 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 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, so only those businesses that meet certain criteria will be subject to this new disclosure rule. These criteria are:
- have an ABN and is not an excluded entity (ie a DGR, registered charities, government entities, and complying superannuation entities);
- has one or more tax debts of which at least $100,000 is overdue by more than 90 days;
- is not effectively engaging with ATO to manage its tax debt; and
- the Inspector-General of Taxation is not considering an ongoing complaint about the proposed reporting of the entity’s tax debt information.
When a business meets the above criteria, the ATO is required to notify the business in writing and give them 28 days to engage and take action before any debt is disclosed. In addition, tax debt information will only be provided to CRBs where they 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, PAYGW), 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 Pt IVC objection against a taxation decision to which its tax debt relates;
- has an active review with the 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 practical approach to disclosure of tax debts were outlined by the ATO previously. It 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.
Unsure if you have a tax debt to the ATO and want to avoid having your credit rating affected? Or perhaps you need help with working out a payment plan with the ATO for your existing debt? We can help with all this and more, contact us today.