If your business has had issues paying your tax debt due to the ongoing effects and uncertainty surrounding 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 your business’ credit score.
By way of background, laws were passed in 2019 which allow ATO to disclose overdue business tax debts to credit reporting agencies 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 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 to avoid having those debts disclosed.
To protect taxpayers, the laws passed contained safeguards in 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 (ie excluded entities include deductible gift recipients, a complying super funds or SMSFs, 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;
- there is no active complaint with the Inspector-General of Taxation and Tax Ombudsman regarding the ATO’s intent to report tax debt information.
Even if your business debt satisfy the above criteria, the ATO may still have the discretion to not report the debt information to credit reporting agencies where you may be experiencing exceptional circumstances. 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 consider cash flow issues nor 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.
Before any debt is disclosed to credit reporting agencies, the ATO will be required 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 to avoid having the tax debt reported and will need to be taken within 28 days of receiving the notice. Taxpayers that believe the ATO has made a mistake or disagree with the disclosure decision are advised to contact the ATO immediately upon receiving the notice.