Disclosure of business tax debts: What small businesses need to know

The ability to access credit is critical to the short and long-term viability of many small businesses. Proposed new legislation could mean that the Australian Tax Office (ATO) can disclose tax debts to credit reporting bureaus. So, what do small business owners need to know?

The proposed measure to enable the ATO to share information about businesses’ tax debt with credit reporting agencies first appeared in the Australian Government’s 2016–2017 Mid-Year Economic and Fiscal Outlook.

The bill was put to one side while the election was seen to, but now it’s back on the table, albeit in a revised format from its first iteration. A Senate committee gave a tick of approval to the proposal in September 2019, and it looks likely to become a reality over the next few months.

Previously, the ATO has kept businesses’ tax debt as a matter between the parties involved, and the proposal to make debts public are a marked shift in strategy.

Why has the disclosure of business tax debts been proposed?

Primarily because small businesses owe the ATO a lot of money – collectively it was almost $24 billion last financial year. The ATO also argues that the visibility of large tax debts will help other businesses make more informed credit decisions and minimise any unfair advantage to those businesses who don’t pay on time.

Who will the proposed change impact?

Essentially, it will affect businesses with more than $100,000 of tax debt that is at least 90 days overdue. The original proposal was to report tax debts of $10,000 or more, but after consultation that threshold was increased to $100,000. The bill proposes to allow the ATO to disclose the tax debts ‘of entities that consistently do not engage with the ATO to manage those tax debts’ to credit reporting bureaus.

What should small businesses do to get on the front foot?

The proposal is designed to get small businesses to pay their tax on time. However, the reality of small business is that sometimes that’s just not possible. The key seems to be to engage with the ATO, rather than going off the radar.

An ATO spokesperson told Prospa, “We cannot comment on legislation that has not yet become law, however, we encourage businesses who have a debt with us to give us a call and tell us what is going on. Keep lodging your BAS and tax returns. Ignoring your tax obligations is not a good idea.

“We want viable businesses to be successful, and we are very happy to arrange a payment plan to help you get back on your feet. If you’d prefer to not engage with us directly or don’t know where to start, we encourage you to speak to a registered tax or BAS agent as soon as possible, they will be able to help you.

“Even if you feel you have left it too late or your debt is becoming unmanageable, give us a call. It is never too late to engage with us. In 2017–18, we negotiated 1.1 million payment plans with taxpayers, of which nearly 800,000 were for small business.

“Even if you can’t pay on time, you still need to lodge your activity statements and tax returns on time. This will help avoid penalties for failing to lodge on time and help demonstrate that you’re aware of your obligations and doing your best to meet them.”

What are the potential consequences for small businesses?

The Small Business Ombudsman supports the bill ‘in principle’ but is asking for further clarity over how the ATO will apply the scheme. Deputy Small Business Ombudsman Craig Latham told Smart Company, “The consequences of this are not just your business looks bad, but your finances will be affected.”

If you’re reported to a credit scoring agency for an ATO debt, it could have significant repercussions on the trading terms you can access and your ability to borrow money.

The Inspector-General of Taxation has made several recommendations, particularly around the need for safeguards for small businesses who have disputed tax debt or businesses who are trying to engage with the ATO, either successfully or unsuccessfully.