Coming Clean On Tax Debts
From 21 February 2020, a new law will enable the Australian Taxation Office (ATO) to disclose the tax debt information of some ABN holding taxpayers to registered credit reporting bureaus (CRBs).
The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019, allows the ATO to share the information of ABN holding taxpayers, carrying on a business with tax debts of $100,000 who fail to engage with the Commissioner of taxation.
When considering this $100,000 threshold, the ATO will include:
- income tax debts
- activity statement debts, for example, GST, Pay as You Go Withholding (PAYGW)
- superannuation debts
- fringe benefits tax debts, and
- penalties and interest charges.
Around 5,000 Australian businesses will potentially have their tax debts reported. However, it is not mandatory for the Commissioner to disclose this tax debt information.
The ATO has advised that it will apply administrative safeguards above and beyond the legislative protection in the bill and legislation, before reporting the tax debt information of a business.
Businesses engaging with the ATO to manage their tax debts will not have their tax debt information reported to CRBs. In this instance, the ATO will notify a business if it meets the reporting criteria and provide it with 28 days to engage with the ATO and take action to avoid having it’s information reported. Such engagement will see the business encouraged to either repay the debt in full or enter into an acceptable payment plan.
The ATO will consider that a taxpayer has ‘effectively engaged’ with it if it:
- has a payment plan in place and is meeting the terms of the payment plan
- has an active objection against a taxation decision to which its tax debt relates
- has an active review with the Administrative Appeals Tribunal (AAT) or to the Court against a decision
- has an active complaint lodged with the Inspector-General of Taxation about the tax debt that is, or could be, the subject of an investigation.
The ATO believes that this legislation will ‘level the playing field.’ In their opinion, businesses that are not paying taxes have an unfair advantage over those that are meeting their taxation obligations.
Credit providers have eagerly awaited the introduction of this legislation as it gives them more information about their customers, which is particularly useful when assessing whether they wish to have a business relationship with the party.
We predict that the introduction of this legislation will have a significant impact on many businesses.
Being in tax debt is a position that many business owners never anticipate. The ATO wants those businesses to actively engage with them to resolve their tax issues, hence the safeguards built into this legislation.
Non-payment of taxes is just one sign of an underperforming business. The earlier businesses seek professional advice, the higher the chance of rehabilitation. Ignoring a debt to the ATO is now no longer an option.
The partners at Brooke Bird are experienced in dealing with businesses facing difficulties and would be happy to meet to discuss the alternatives available.