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Small business tax debts to be revealed to credit agencies Posted on October 9, 2018


The tax man will now disclose small business tax debt information to credit reporting agencies under a new measure announced in the federal government’s mid-year budget update, and will dramatically affect any small business lending going forward; smaller amounts of funding from lenders traditionally haven’t required an ATO portal check.

The measure, which comes as tax debts to the Australian Taxation Office hit almost $20 billion, will initially apply to businesses with Australian Business Numbers and tax debts of more than $10,000 that are at least 90 days overdue.

The revelation was made in this week’s release of the midyear economic and fiscal outlook by Treasurer Scott Morrison.

According to the ATO’s latest annual report, the total level of collectable debt as of June 30 was $19.2 billion. It said that $1.7 billion in debt was written off as “uneconomical to pursue”.

The ATO has been under pressure to move faster to recoup escalating tax debts.

Small businesses make up the majority (62.5%) of taxpayers with debts, and according to the ATO remain “a key area of focus” since just 72.3% of small business tax liabilities got paid on time.

Small businesses accounted for $12.5 billion of total collectable debt holdings, an increase of 1.9% over the previous year.

Chartered Accountants Australia and New Zealand head of tax policy Michael Croker said: “It’s time something was done about the level of unpaid tax debt in Australia.

Business taxpayers need to engage early with the ATO and sort out tax debt problems. Tax law secrecy provisions will no longer hide tax debts from other creditors.”

There were “legitimate concerns” about whether the government was “setting the bar too low” in reporting tax debts.

But he warned it also could make life tougher for small business.

“In finance circles, telling credit reporting agencies about an unpaid tax debt is like putting an advertisement in the newspaper,” he said.

“It can make things difficult for future finance and supplier credit applications. This is a policy that needs to be implemented with care.”

Council of Small Business Australia chief executive Peter Strong said: “We support this, as they will only take action if a business does not engage with the ATO.

“The issue has been that if you act too early it can stop a viable business from trading through a difficult time, and if you act too late the business may end up in worse trouble and thus can also impact on its suppliers,” he said.

In previous years the ATO has been criticised for acting too harshly against small businesses with debts.

Inspector-General of Taxation Ali Noroozi’s report into the ATO’s management of debt owed found that “there is a difficult balance to strike between recovering tax debt efficiently and minimising risk to government revenue on the one hand, and providing appropriate financial accommodation to the taxpayer on the other”.

His report had found cases where enforcement action had been undertaken “where it was perhaps not appropriate”.

It noted that while the ATO was taking positive steps to manage debts and ensure officers were adequately trained, junior officers had been authorised to make important decisions without senior officer approval, such as garnisheeing taxpayer bank accounts up to $50,000.

While the ATO was right to try to take swifter action to recoup debts, “the manner in which the ATO pursues debt recovery should not jeopardise a taxpayer’s ability to generate future income and economic contribution in ordinary circumstances”, his report said.

The Australian Taxation Office has previously told Fairfax Media it will be taking “more timely action” to prevent small business debts escalating.

The ATO had previously allowed companies to accumulate more than $345,000 in back taxes before taking legal action.

An ATO spokesman said the agency was rethinking its approach. “The community has told us they want firmer treatment of tax debtors who do not address their debt,” the spokesman said.

“Businesses that ignore their obligations will receive timely, firmer action from the ATO. This will include legal action where there is evidence the business is insolvent.”

Since 2006 the ATO has outsourced some debt collection to third parties who charge a flat fee per debt case referred.

The ATO has been working to improve its relationship with small business taxpayers after a 2014 parliamentary inquiry found that many of them had been intimidated, made bankrupt and suffered mental breakdowns and contemplated suicide after drawn-out disputes with the tax office.

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