The ATO now has another "stick" in its arsenal to get businesses to engage with it and manage outstanding tax debts. Laws have recently been passed that allow the Tax Office to disclose tax debt information of businesses to registered credit reporting bureaus (CRBs). The aim of the laws, according to the government, is to encourage more informed decision making within the business community by making large overdue tax debts more visible, and reduce the unfair advantage obtained by businesses that do not pay their tax on time.
The disclosure of these debts have the potential to affect the credit ratings of businesses and their ability to refinance existing debt, so only those businesses that meet certain criteria will be subject to this new disclosure rule. These criteria include having an ABN, debts of at least $100,000 overdue for more than 90 days, not effectively engaged to manage the debt, and do not have an ongoing complaint with the Inspector-General of Taxation.
When a business meets the above criteria, the ATO is required to notify the business in writing and give them 28 days to engage and take action before any debt is disclosed. In addition, tax debt information will only be provided to CRBs where they are registered with the ATO and have entered into an agreement detailing the terms of reporting.
According to the ATO, an entity's tax debts for the purposes of the disclosure rule includes income tax debts, activity statement debts (eg GST, PAYGW), superannuation debts, FBT debts and penalties and interest charges. An entity is generally considered to be effectively engaged with the ATO in respect of a tax debt if it has a payment plan in place and is meeting the terms of the plan, or has an active review, objection or compliant lodged with the relevant authorities.
The practical approach to disclosure of tax debts were outlined by the ATO previously. It consists of a phased implementation approach, with the initial phase focusing on raising community awareness of the measure through newsletters, articles, forums and speeches. After the initial phase, it will begin firstly with companies that meet the disclosure requirements before moving onto other entities such as partnerships, trusts, and sole traders with ABNs.