Disclosure of Business Tax Debts
The ATO is writing to thousands of businesses with outstanding tax debts to warn them that they will be reporting the debts to credit reporting bureaus unless action is taken. This move could obviously have a very detrimental effect on the businesses concerned, not only in terms of tainting their credit history and/or credit score, but also in terms of the potential to spook existing lenders to the business, including banks, finance companies and suppliers.
It is useful to have an understanding of how these measures work and the positive steps that can be taken by affected businesses to deal with the issue.
Background
The genesis for these measures can be found in Schedule 5 of the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Act 2019. The Act itself received Royal Assent on 28 October 2019 with the Disclosure of Business Tax Debt measures taking effect the following day. Despite this having been law for some 18 months, anecdotally, it has only been in recent times that more activity has been seen in this space.
Which businesses are impacted?
For a business tax debt to be caught by these measures, the business must have one or more tax debts that total at least $100,000 and have been overdue by more than 90 days.
So-called “excluded entities” are not caught by the measures. An excluded entity refers to a superannuation fund, deductible gift recipient, registered charity or government entity.
How does the process start?
Letters emanating from the ATO seeking to apply these measures will typically bear a title of “Act now or your tax debt will be reported to credit reporting bureaus”. Such letters are referred to as Notices of Intent to Disclose.
The letters will make clear the ATO’s intention to report the tax debt to credit reporting bureaus and the information they intend to report. The letters will then outline the steps that a business can take to avoid the information being reported.
What action can be taken if a notice is received?
The most direct way of dealing with the issue is of course to pay the outstanding debt. This, however, assumes that the business agrees with the tax debt and has the means to pay it. If the business is unable or unwilling to pay the debt, then the key step that a business can take to prevent a debt being reported is to “engage” with the ATO in relation to the debt. The ATO consider the following courses of action to be effective engagement:
- Entering into a payment plan and complying with the terms of the plan;
- Having an application on foot seeking release from the debt;
- Having an active objection on foot in relation to the decision giving rise to the debt;
- Having an active complaint with the Inspector-General of Taxation Ombudsman (IGTO) in relation to the tax debt or in relation to the ATO’s intent to report the tax debt.
It may also be possible to temporarily prevent the reporting of a tax debt in exceptional circumstances, such as family tragedy, serious illness and natural disasters.
Critically, engagement must take place within 28 days of receiving the notice.
Keeping Your Eyes Peeled
If you have clients with business tax debts which may be caught by these measures, keep your eyes peeled. Business owners can be notorious for discarding, ignoring or stockpiling ATO correspondence. It might be that the horse has bolted and a notice has already issued, in which case urgent action will be needed. Where a notice hasn’t yet issued but a client is in the crosshairs of these measures, it would still be a good idea to discuss these measures with them as soon as practical. In many cases, involving the client’s tax agent in the discussion will also be beneficial. By being proactive, it may be possible to put in place a strategy to ensure that a client’s business tax debt doesn’t get caught by the measures. This may mean taking steps to at least ensure the debt remain less than $100,000 or doesn’t reach 90 days overdue. Even if that isn’t possible, at least by raising the issue with the client in prospect, you may be better placed to deal with the issue when a Notices of Intent to Disclose does arrive.
Source: Australian Bookkeepers Network
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