Businesses given 28 days to make an effort to manage tax debt.
Two weeks ago, the Accountants Daily reported that businesses with over $100,000 in tax debts have begun receiving letters from the Australian Taxation Office (ATO) warning them of the ATO’s intention to disclose tax debt information to credit reporting bureaus. Those letters assert those businesses’ owners/directors have 28 days from receiving the letter to engage with the ATO to manage tax debt.
Further, businesses actively engaging with the ATO to manage their tax debt will not be reported to credit reporting bureaus.
Businesses that meet the criteria are reportedly receiving orange-coloured warning letters, which is the first instance of these letters being in circulation since the law enabling the ATO to report on certain tax debt took effect on 21 February 2021.
This latest news follows: the ATO's approach to debt collection and small business insolvency will seismically shift where we warn that despite volatile lockdown circumstances "A wait-and-see approach" won't pay off.
In what circumstances can the ATO report unpaid debts to a credit reporting bureau?
Further to our article in November 2019 the criteria is:
- The business has an ABN and is not defined as an ‘excluded entity’ (a deductible gift recipient, registered charity, a government entity, and a complying superannuation entity).
- The business’s tax debts are $100,000 minimum and overdue by 90 days plus.
- The business is not considered to be ‘effectively’ engaging with the ATO to manage its tax debt.
- The Inspector-General of Taxation is not considering a complaint made by the business about “the proposed reporting of the entity’s tax debt information."
However, the mechanism for reporting is not automatic. The ATO must notify the business in writing and give them 28 days to engage with the ATO to manage its tax debt.
The ATO will only provide tax debt information to registered credit reporting bureaus that have an agreement with the ATO detailing the reporting terms and are also compliant from tax perspective.
What type of tax debt is factored into the >$100k disclosure threshold?
Business tax debt captured into the tax debt disclosure threshold includes:
- income tax debts
- activity statement debts
- superannuation debts
- fringe benefit debt
- penalties and interest charges.
What’s the impact?
As defaults are recorded on a taxpayer’s commercial credit file, it will have immediate and lasting consequences for a defaulting taxpayer. A credit default is a black mark that lasts for five years and creates an environment where support from financiers may be restricted.
What should advisors do?
We believe it is important for advisors to be aware of this new approach from the ATO. It may be useful to check relevant clients' outstanding tax position and make them aware of the action the ATO is reportedly taking.
The team at Worrells is here to help (click here) and give complimentary and confidential financial health and insolvency advice every day to advisors and their clients across Australia.