As originally proposed in the 2016-17 Mid-Year Economic and Fiscal Outlook, the Federal Government has released draft legislation that would allow the Australian Taxation Office (ATO) to disclose overdue tax debts to credit reporting agencies, when certain conditions are met. Public consultation on the bill and the explanatory memorandum for the bill took place from December 2017 and February 2018. It is anticipated that the draft legislation be tabled in Parliament during March 2018.
The draft legislation aims to:
- Foster a debt-transparency driven culture and enable better informed decision making in the business community by enabling businesses and suppliers to see if a business is paying their tax debts on time. Per explanatory memorandum for the bill, this will allow credit providers to “make a more complete assessment of the credit worthiness of a business” when they consider extending payment terms.
- Create a level playing field by deterring businesses who do not pay their taxes on time from gaining an unfair advantage over businesses who do comply with their tax obligations.
- Encourage businesses with cash flow or insolvency issues to proactively engage with the ATO to manage their tax debts. Where a business is unable to make full payment of a tax debt and an agreed upon payment arrangement has been entered into with the ATO, they will not be subject to the credit reporting obligation.
Businesses that do not actively work with the ATO to meet their tax obligations or intentionally do not pay their tax on time will be penalised by publishing their tax affairs to credit reporting agencies.
The ATO will have the discretion to disclose overdue tax debts to credit reporting agencies where a business meets all the following criteria:
- Has an Australian Business Number (ABN) and is not an excluded entity. Some examples of excluded entities include deductible gift recipients, not for profit organisations and charities.
- Owes a tax debt to the ATO, of which at least $10,000 has been overdue for more than 90 days. Tax debt includes Business Activity Statement (BAS), Income Tax (IT), Superannuation, Fringe Benefits Tax (FBT), penalties and interest. The total overdue tax debt will be reported.
- Are not effectively engaging with the ATO in managing their tax debt to the ATO. Some examples of proactive engagement with the ATO to manage tax debt include meeting the terms of an agreed-upon payment arrangement and formally lodging a dispute with the ATO.
A number of other criteria would have to be satisfied before the ATO discloses a business’s outstanding tax debt to credit reporting agencies, including giving written notice to the business 21 days in advance advising that their information would be forwarded to credit reporting agencies if they do not respond.
A business’s unpaid tax debts, once disclosed to credit reporting agencies, will remain on a commercial credit rating file for five years. Payment of the tax debt once it is on a commercial credit rating file will not remove the default. A default will make it more difficult for a business to access funding from lenders.
Given that draft legislation to improve the transparency of tax debts is expected to become law soon, it is vital for businesses to discuss tax debt payment concerns with the ATO as soon as they arise, otherwise the ATO will take more serious action that will affect the running of a business.