A while ago, someone asked me whether the ATO could report a tax debt to a credit reporting agency. I thought “great question!” and wrote an article about it.
The answer, at that stage, was “no – not until the ATO has a judgment against you”. My article explained all the reasons why the ATO couldn’t report your debt to a credit reporting agency.
Unfortunately, that’s all changing. The Government has announced that, from 1 July 2017, the ATO can report a business that has a tax debt to credit reporting agencies. However, this new law is taking a while to be introduced – as
What’s prompted the change?
There used to be secrecy provisions that stopped the ATO from disclosing your tax debt to anyone. In early 2014, the ATO suggested to Parliament that the government should change this. The ATO wanted to be able to tell credit reporting agencies about tax debts.
The ATO said that this could help it to collect the $18 billion of tax debt owed by small to medium businesses.
It looks like the government has listened. It announced a change on the 19th December of 2016 in its ‘Mid-Year Economic and Fiscal Outlook’.
Tucked away in that 292-page report was this:
From 1 July 2017, the Government will allow the ATO to disclose to Credit Reporting Bureaus the tax debt information of businesses that have not effectively engaged with the ATO to manage these debts. The ATO does not currently provide this information.
As at 14 March 2019, this legislation was yet to pass through Parliament, but it is expected to become law at some stage.
What does the change mean?
Once the ATO is granted this new power, it will be able to report your business debt of over $100,000 to credit reporting agencies, if that debt is more than 90 days overdue.
The ATO has indicated that it will only use this power if a business has not ‘effectively engaged’ with the ATO about the tax debt.
So you should not ignore the ATO’s attempts to collect your business tax debt. If you do, the ATO can record your non-payment on your credit file. This will have immediate and lasting consequences for your business.
How long does your unpaid tax debt stay on your credit file?
A credit default is a black mark that usually lasts on a commercial credit rating file for five years.
It’s very difficult to have the default removed once it added it to your file. Usually, a default is only removed if you can show that it is wrong and should not be on your file.
However, the ATO has said that if you no longer meet the criteria, it will instruct the credit reporting agencies to remove the default from the system. This means that the default will not appear on any future credit reports.
This means that if you pay your debt in full, or if you enter into a payment plan with the ATO, the ATO should have the default removed from your credit file.
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 does the ATO say?
The ATO has released some guidelines about how it will apply this new law once it is passed. There are a few interesting things in these guidelines.
You will be notified before the debt is reported
The ATO has said that it will notify a business at least 21 days before it reports the tax debt for the first time. This will give you 21 days to take steps to stop the report being made.
If you don’t agree that your debt should be reported, you will be able to have the decision to report reviewed by another team within the ATO. You must apply for this review within 21 days of receiving the notification about the proposed reporting.
If you don’t agree with the decision that this independent team makes, you can have the decision reviewed by an independent panel.
The ATO says that it won’t report the debt
The ATO will keep the figures updated
Once the ATO has reported your tax debt to the credit reporting agencies, it will send the agencies regular updates on the balance of your overdue tax debts. This means that if you make payments, or if your tax debt grows, the credit reporting agencies will know about it.
Ways you can avoid your debt being reported
The ATO says there are two ways you can avoid having your debt reported to a credit reporting agencies.
The first way is to pay your debt.
The second way is to ‘effectively engage’ with the ATO about your debt. There is going to be a public consultation about what ‘effectively engage’ will mean, but it could include things like:
- having a payment plan in place
- having an ongoing dispute with the ATO about the tax debt – e.g. having an
objectionthat is being considered, or being involved in a court or tribunal review of the debt
What you should do
Even though this isn’t the law yet (as at 14 March 2019), knowing that it’s coming is a good prompt to take action.
If you have an overdue tax debt, then the best thing you can do is to engage with the ATO about how you plan to pay it.
I know this can be a scary prospect and that it can be difficult to know where you stand with the ATO. But burying your head in the sand won’t help. You need to address the debt now, before the ATO takes more serious action that can affect your ability to run your business.
If you need some advice on how to approach the ATO, or you would like me to approach the ATO for you, then please contact me for a chat about how I can help you.
About Hartigan Law
I am a specialist tax disputes lawyer with over a decade of experience in dealing with the ATO.
I have helped many clients to deal with their tax debts, including having debts reduced through remission requests and negotiating payment plans. I have helped also save clients from the brink of bankruptcy or winding up at tte ATO’s hands.
I work with clients all over Australia and internationally. I can do this because the tax issues I deal with are Federal – the law is the same no matter where in Australia you live.