Move to improve the transparency of business tax debts

Currently any outstanding debt obligations with the Australian Taxation Office (ATO) remain between the business, the ATO and the relevant collections agencies.

This means that potential creditors don’t know if a business owes substantial amounts to the ATO, making it impossible to reach an informed opinion on its solvency.

However, in an effort to increase the transparency of tax debts, an announcement was made in the 2016-17 Mid-Year Economic and Fiscal Outlook (MYEFO) regarding changes to the disclosure of tax debt.

The government has recently released the draft legislation for public consultation that, if it passes as expected, will allow the ATO to disclose any business tax debts to credit reporting bureaus (CRBs) if the business falls under the following criteria:

• It has an ABN and is not an excluded entity (such as a charity or complying superfund);
• It has a tax debt of at least $10,000 in which that debt is overdue by more than 90 days;
• It is not engaging with the ATO to try and manage that debt.

This is intended to bring tax debts into line with credit provider debts.

On one hand this provides much greater protection to creditors who will benefit from the more accurate picture of a business’s debt profile.

Unfortunately, most businesses that can’t meet their tax obligations after 90 days or past the arrangement date they have with the ATO don’t survive.

On the other hand, ATO demands could potentially set off a domino effect, placing creditor businesses under financial pressure.

Furthermore, should such debts be disclosed to CRBs, businesses that do fall within the above criteria will likely have trouble when it comes to refinancing loans or being granted credit terms by suppliers.

They will be revealed to be a much greater credit risk.

With these new powers, the ATO will be better equipped to recover debts from struggling businesses well before potential business collapse. This may well assist the government in balancing its budget.

Clearly these changes mean that it is imperative to stay on top of any taxation obligations.

Need help with tax?

If your business owes money to the ATO and is at risk of having the debt reported to a CRB, or if you have any reason to believe that this may be the case in the future, LDB can assist in engaging with the ATO to manage any outstanding debts. It is imperative to take action as early as possible in the recovery process.

To find out how we can help you, give us a call (03) 9875 2900 or complete the contact form below.