Scary? ATO disclosure of tax debt to credit agencies
ATO disclosure?! There’s nothing quite like a government agency telling other agencies that you have a large tax debt, is there?
If you thought that your debt was safe in your own knowledge, think again! Since 21 February 2020, the ATO has been allowed to disclose business tax debts to credit reporting bureaux. We’ve previously discussed the ‘Mounting Risk for Directors‘ – and here we have yet more powers granted to the ATO to help them pursue outstanding tax debt.
Of course, there are limits. Communication and negotiation go a long way towards mitigating the risk.
The debt must be $100,000 or more. But the debt doesn’t have to be corporate; it can be personal business debt, too.
The disclosure of business tax debt is designed to reduce unfair advantage
Behind the change is the notion of reducing the unfair advantage of those who don’t pay their tax on time. These entities really do have an unfair advantage: By not paying their debts, those businesses are effectively using the ATO as a ‘bank’.
Up until the change, any credit check run against your business would not disclose large tax debts. In not doing so, the ATO argues, those same checks returned incomplete or incorrect indications of the financial standing of the business.
However, there are criteria that must be met before disclosure occurs.
What are the criteria?
In order for your debt to be disclosed, you must:
- have an ABN
- have had a tax debt of $100,000 or more for 90 or more days (increased from the originally proposed $10,000 thankfully)
- not be talking to the ATO about managing or repaying that debt
- not have an ongoing complaint in front of the Inspector-General of Taxation in relation to the debt.
If you’re at the helm of a government entity, a registered charity, or a complying super fund, then this ruling doesn’t apply to you.
How it works and the options that you have
You’ll be given 28 days’ notice before the ATO disclosure of tax debt. The way this works is that you’ll be notified in writing, and asked to start talking to the ATO to resolve the debt.
They will give you a range of options that will help you to resolve it. Some of those include:
- putting in place, and meeting the terms of, a payment plan
- having in place an active matter, or review of a decision, before the Administrative Appeals Tribunal
- having an active complaint in front of the Inspector-General of Taxation.
The big risk is that with the temporary relaxation of the laws regarding insolvent trading (the COVID19 Safe Harbour), businesses will have relied upon the payment plans with the ATO to survive the economic crisis. When the COVID Safe Harbour expires in September 2020, directors may find themselves personally liable for insolvent trading – including escalating ATO debt.
Directors should be especially weary of the Directors Penalty Notice which activates personal liability for unpaid GST, PAYG and superannuation. Failing to lodge or comply with your tax obligations can render a director instantly liable for tax debt through the ‘lockdown DPN’. Whereas if there is a failure to pay, the director will be granted 21 days (from posting) to either pay or appoint a registered liquidator through the DPN regime.
Don’t forget that there is a superannuation amnesty until 24 August 2020 – this gives a once-off amnesty designed to encourage employers to come forward and correct historical non-compliance for superannuation guarantee reporting.
The good news is that this situation is easy to avoid
We hope that the vast majority of businesses will never find themselves in a situation in which their tax liabilities are disclosed to credit reporting bureaux.
The good news is therefore that it’s really easy to avoid!
If you are facing a tax debt, and you’re not sure you can pay it, simply open a conversation with the ATO. You will have to pay your debt, but there are ways to work with the ATO that ensure your struggle isn’t reported by other organisations.
Get in touch with ReGroup Solutions if you are concerned about insolvency and your personal exposure.