In December 2016, the Federal Government’s Mid Year Federal Outlook (MYFO) included a tax integrity measure which could have a significant impact on business owners.
From 1st July 2017, the government will allow the Australian Taxation Office (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.
The measure will initially only apply to businesses with Australian Business Numbers and tax debt of more than $10,000 that is at least 90 days overdue.
If the default does appear on a business credit file, it remains in place for 5 years and will make it extremely difficult to obtain further finance or to negotiate credit terms with suppliers.
If the measure has the intended effect of getting business to pay their tax debts in a more timely manner (to avoid affecting their credit rating), the Federal Government could consider widening the net to include non-business taxpayers.
In order to avoid falling foul of this new measure, it is important that taxpayers registered with an ABN stay up to date with their tax payments.
A good way to manage this is to maintain a separate bank account to make a provision for upcoming tax payments (PAYGW, GST, PAYG Instalments, Income Tax and Fringe Benefits Tax) on a weekly basis.
Business owners should have an accounts receivable policy in place with prompt follow ups when receivables go past their due date. This, in addition to watching their margins and keeping tight controls over overhead expenses should assist in maintaining strong cashflows.
If tax debts are likely to go past their due dates it is important to communicate this early to the ATO and to put a payment arrangement in place. Once an arrangement is in place it is important not to default.
The ATO is much less likely to notify credit rating bureaus about a default where a business has communicated with them and has put measures in place to pay the debt.
Given the seriousness of this new measure, we urge business owners to seek advice if they believe they will be affected.
Please Note: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
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