4 ways to help your clients avoid tax debts on their credit report

At the Mid-Year Economic and Fiscal Outlook just before Christmas, Prime Minister Malcolm Turnbull and Treasurer Scott Morrison announced new powers being given to the Australian Taxation Office (ATO).

From 1 July 2017, the ATO will be allowed to disclose tax debt information of any business that hasn’t effectively engaged with them to manage those debts to credit reporting bureaus .

Initially it will only apply to businesses with:

  • Australian Business Numbers (ABNs)
  • a tax debt of more than $10,000 that’s at least 90 days overdue.

But once the report goes on a business’ commercial credit file, it will be there for five years.

The announcement is part of the government’s strategy to change tax payer culture and improve the transparency of taxation debts. The expectation is that businesses will pay their tax debts sooner to avoid damaging their credit rating.

The tax office is owed some $19 billion in overdue tax, including a staggering $13 billion by small businesses with turnover of $2 million or less. The government estimates this measure will increase the budget by $63 million in underlying cash balance terms over the forward estimates period.

The pros and cons

There are arguments both for and against this significant change.

It will provide a competitive advantage to those businesses that have a good payment and compliance history with the ATO. And of course, those businesses with bad debt and a poor compliance history will be penalised.

However, we know how tough it can be to run a small business. Which means this new power needs to be wielded fairly and transparently so viable businesses aren’t penalised for a short-term cash flow problem.

Banks usually know about a business’ tax debt position, although that may not be the case if the loan value and tolerable risk profile doesn’t warrant such micro management. However, if a customer or major supplier finds out about the tax debt on a business’ credit report it could severely affect the business’ future trading and viability.

Four ways you can help struggling clients

If any of your clients are struggling, you need to make sure:

  1. they’re discussing their situation with the ATO.
  2. they build goodwill with the ATO, the bank, and their suppliers and customers
  3. they lodge all their documentation on time
  4. they meet all repayment arrangements, return all calls, and never ignore the ATO.

(And if they happen to be Directors, you may also want to talk about what else they can do to avoid the long arm of the ATO.)

Managing your clients’ relationship with the ATO has become more important than ever before. But as long as you’re proactive, and follow through on what you promise, you’ll be able do to it.

It will be interesting to see how this new process develops. Of course, as soon as we see any significant changes or outcomes we’ll let you know about them. But in the meantime, if you have any questions, or would like to know more about how you can help your clients, don’t hesitate to get in touch with us.