The Federal Government has released draft legislation which will allow the Australian Taxation Office (“ATO”) to disclose business tax debt information to Credit Reporting Bureaus (“CRBs”). Previously, the ATO has not had authorisation to report tax debt information to CRBs under provisions of the confidentiality of taxpayer information. However, implementation of this draft legislation will allow the ATO to disclose tax debt information.
The objective to implementing this new legislation is to encourage more businesses to actively engage with the ATO to manage their tax debts. It is also expected that the legislation will enable better transparency around tax debt, allow credit providers make a more complete assessment of the credit worthiness of a business.
WHICH TAX DEBTS WILL BE REPORTED?
While the specific circumstances and exceptions for disclosure of information are yet to finalised, it is likely that the ATO will be permitted, although not required, to report an entity’s tax debt information to CRBs where the entity satisfies the following reporting criteria:-
- An entity must have an ABN and the entity must not be an excluded entity.
- An entity must have a tax debt, of which at least $10,000 is overdue by more than ninety (90) days.
In situations where entities have a significant tax debt which is overdue by more than ninety (90) days, those entities will be given a specific period of time before the debt will become due. The ATO will also delay reporting those that have recently incurred significant increases in their tax obligations, which should allow an opportunity for entities to respond to sudden increases and make payment of the debt amounts. Should the entity still be unable to make payment, only then will the ATO commence debt recovery. The debt recovery process may vary depending on an entity’s past compliance history.
- An entity is not effectively managing their tax debt with the ATO.
For an entity to be perceived as engaging effectively with the ATO to manage their outstanding tax debts, they must enter into a payment plan with the ATO and adhere to the terms of that payment plan until completed.
The ATO’s main objective is to make it easier for entities to manage and pay their tax debts. In determining whether an entities tax debt information will be reported, the ATO will consider the individual circumstances of each entity, including their capacity to make payment of the proposed amounts, any steps they have taken, or propose to take, in an attempt to minimise their tax debt. The ATO may also take into consideration an entity’s past history, including any previous defaulted arrangements and late lodgements.
HOW WILL AN ENTITY BE NOTIFIED THAT THEIR TAX DEBT INFORMATION IS REPORTED?
If an entity satisfies the reporting criteria and the ATO intends on reporting the tax debt information, the entity will be served with a notice. Following this, the entity will then have twenty-one (21) days from the date of the notice to take action to prevent that information from being reported.
In the twenty-one (21) days after the date of the notice, the following action can be taken to prevent the tax debt information being reported which include; paying the outstanding tax debt; effectively engaging with the ATO to manage the tax debt; or if an entity is experiencing exceptional circumstances, they can make a claim to the ATO. Exceptional circumstances may include family tragedy, serious illness, impacts of a natural disaster and other circumstances.
WHAT HAPPENS NEXT…
In accordance with the current draft legislation, the ATO proposes that once an entity’s tax debt information has been reported to CRBs and this information has been listed on your Credit Report, the ATO will provide regular updates to the CRBs on the balances of an entity’s overdue tax debt, however, the entity itself, will not be notified of these updates. The ATO will continue to provide updates to the CRB until the entity no longer satisfies the reporting criteria. Once a tax debt no longer satisfies the reporting criteria, the debt will ultimately be removed from the entity’s credit report.