Tax debts to appear on credit rating

The Australian Taxation Office (ATO) will be given increased disclosure capabilities if new legislation introduced into the parliament receives royal assent. Under the new law, the ATO will be able to report to credit reporting bureaus the tax debts of a business who is not effectively engaged in managing its outstanding debts.

As a result, from the date of royal assent, a tax debt that is greater than $100,000 and more than 90 days overdue may appear on a business' credit rating.

The ATO will be required to notify a business in writing when it intends to disclose the debt to credit reporting bureaus. In these instances, the business will have 21 days to ensure the tax debt does not appear against their credit record.

Risk mitigation steps

For businesses with an outstanding tax debt

To avoid current or future tax debts being reported to a client's credit rating, they can pay the outstanding debt before the due date or enter into a payment arrangement. Under a payment arrangement, the client would need to agree to:

•         lodge all outstanding income tax returns and activity statements before commencing the payment arrangement

•         make consistent payments towards the debt over a specified and agreed timeframe, including general interest charge, and

•         continue to lodge and pay all future debts on time and in full.

        Failure to complete all these points may cause the debt to be referred to the credit reporting bureaus, which could reduce borrowing capacity in the future.

 For businesses with large debtors and/or reliance on a particular customer

This new reporting requirement can enhance a business' ability to have greater control over who they extend credit terms to. Cloud-based accounting and third party web services have credit check facilities so users can see if a particular customer should be extended credit.

These types of services are also invaluable for businesses who have a heavy reliance on one customer for a large contract. It may be worthwhile for clients to rethink this strategy when their major customer has a bad credit rating or large secured creditors.

Information sourced using CCH iknow