Your business tax debt can affect your credit score
The ongoing COVID-19 pandemic has caused uncertainty in many parts of the economy and has led to what many experts term a “two-speed economy”: while some businesses are recovering well, others continue to suffer. If your business has had issues paying debts, or have prioritised trade debts ahead of tax debts, remember that these actions may lead to a lasting impact on your business’ credit score. The ATO is able to disclose business tax debts to credit reporting agencies if certain conditions are met including non-engagement with the ATO regarding payment of the debt.
If your business has had issues paying your tax debt due to the ongoing effects and uncertainty caused by the COVID-19 pandemic, remember that the best option is to engage with the ATO to manage those debts. Failure to get in touch with the ATO to come to an arrangement will not only affect the potential penalties imposed but may also affect your business’ credit score.
Background to tax debt disclosure
By way of background, laws were passed in 2019 which allow the ATO to disclose overdue business tax debts to credit reporting bureaus including Equifax, Experian, and Illion. The laws were originally promoted as a way to support businesses to make more informed decisions around dealings with various parties by making overdue tax debts more visible.
The flow-on effects from that include reducing the unfair financial advantage obtained by businesses that do not pay their tax on time and encouraging businesses to engage with the ATO to manage their tax debts so as to avoid having those debts publicly disclosed.
To protect taxpayers, the laws passed contained safeguards so that not all ATO debts can be disclosed and only those business debts that meet the following criteria may qualify for disclosure:
- the business has an ABN and is not an excluded entity (i.e. excluded entities include deductible gift recipients, a complying super fund or SMSF, registered charities, and government entities);
- the business has one or more tax debts, of which at least $100,000 is overdue by more than 90 days;
- the business operators have not engaged with the ATO to manage the debt (e.g. a payment plan, application for release, objection, AAT review);
- there is no active ongoing complaint with the Inspector-General of Taxation regarding the ATO’s proposed reporting of the tax debt information
Exceptions to tax debt disclosure
Even if your business debt satisfies the above criteria, the ATO may still decide not to report the tax debt information to credit reporting agencies if you are experiencing exceptional circumstances outside of your control. These include, but are not limited to, family tragedy, serious illness, impact of natural disasters etc. If you believe your business has been impacted by one of more of these exceptional circumstances, the ATO will assess your claim on a case-by-case basis.
It should be noted that the ATO does not usually consider cash flow issues or financial hardship to be “exceptional circumstances”, although it still recommends taxpayers that are experiencing these issues to initiate contact as soon as possible to discuss debt management options. For example, if your business has been affected by COVID-19, the ATO has committed to additional administrative support in the areas of lodgment and payment.
ATO notification requirements
Before any debt is disclosed to credit reporting agencies, the ATO is required to send your business a written notice confirming its intent to report the debt information, the criteria that your business has met, and the debt information that will be disclosed.
The letter will also outline the steps which the business can take within 28 days of receiving the notice to avoid having the tax debt reported.
Taxpayers that believe the ATO has made a mistake with their debt balance or disagree with the disclosure decision should contact the ATO immediately upon receiving the notice.
Received a notice?
If you’ve received a notice and are not sure what to do, we can help you.
Even if you haven’t received a notice, but have a current tax debt, we can help you work out your best option and potentially get penalties remitted.
For expert advice and assistance in dealing with your Tax Debt in Australia, please contact Mathews Tax Lawyers on 1800 685 829
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.