Did you know that a tax debt can affect your credit rating? New reporting measures will have significant consequences for businesses that rely on credit providers to finance their activities.
For anyone reading this who is paying off a debt in instalments: call the ATO and make sure that you've got a formal arrangement in place. Take the reference number for the call and keep the letter they sent you.
We realise this could worry some of our clients, especially if they have overdue returns or BAS. Please reach out to us sooner rather than later if we can be of assistance.
In an effort to get the $19bn of overdue tax owed to the ATO, a third of which is owed by small businesses with turnover of less than $2m, new legislation allows the ATO to disclose tax debt information to credit reporting bureaus (CRB).
We understand that the ATO will only disclose a taxpayer's debt to a CRB if:
- It has an ABN
- Its tax debt exceeds $10,000,
- The debt is overdue by 90 days
- It hasn't effectively engaged with the ATO to manage it tax debt
'Effectively engaged' means that the business has agreed to a payment plan with the ATO, or is disputing the liability before a court or tribunal. The standard credit reporting industry approach for defaulted debts is five years. We're hoping the tax debt information will no longer remain visible on a credit record once a business doesn't satisfy the above criteria for disclosure. However, it could prove to be difficult to remove the bad credit rating for five years once the ATO have reported it.
What's the impact of this?
The listing of a tax debt on your business’s credit report can have a significant impact on your business.
It can make it very difficult for your business to access funding from banks and other lenders. They will access your credit file and see that you didn’t pay the ATO on time. They will use this against you and say that it is risky to lend to you. If they do agree to lend to you, it likely that you’ll be paying a higher rate of interest.
Other businesses might also refuse to extend credit to you because of the listing of the default. Getting trade accounts with suppliers could become a lot more difficult.
What if your returns are overdue?
If you have a business with an existing or accrued tax debt it's important that you take action now, before the ATO catch up with you, especially if you have overdue documents. The ATO usually won't let you negotiate a payment arrangement for existing debts until your late tax returns and BAS's are lodged.
If the ATO only give you 21 days notice before reporting your defaulted debt, will you have time to get everything in order with your bookkeeper and tax agent? Most likely not. It could take a few months, realistically. A rush job is not a good job, and mistakes could get you audited.
If you ignore their lodgment demands, the ATO could find ways to issue a default assessment with a big tax bill and unremittable penalty before you get the chance to assess your own tax position with deductions. So be prepared.
Do you need a strategy?
Alex Frost is an expert in tax representation, with 17 years experience in efficiently preparing overdue multi-year tax returns and resolving difficult issues with the ATO. She has helped many clients to receive interest and penalty remissions, to object to and appeal the ATO’s decisions, to be relieved of certain debts, and to reach settlements on disputed tax amounts.
Please contact us if you need a consultation to effectively plan your lodgements and debt negotiations without negatively impacting your cash flow. In the process, we will sensitively address the underlying issues behind your tax debt and clearly explain your options.