Government disquiet about unpaid tax debts is nothing new, but the level of disquiet has been steadily growing and in December 2016 the Government said the equivalent of ‘right, that’s it, we’ve had a gutful, it’s time to name and shame’…
The Government said it was time to report businesses with unpaid tax debts to credit reporting bureaus.
Currently, the amount of a business’s tax debt is confidential and can’t be revealed by the Australian Taxation Office (ATO) to anyone, so this naming-and-shaming measure is serious as it could potentially result in financiers and trade suppliers refusing to deal with a business.
Here’s a run-down of what you need to know.
Why ‘transparency of tax debts’?
In the 2016-17 Mid-Year Economic and Fiscal Outlook, under the heading of ‘Maintaining the budget position’, the Government said it was:
…enhancing the integrity of the tax system by allowing the Australian Taxation Office (ATO) to disclose to credit reporting bureaus the tax debt information of businesses who have not effectively engaged with the ATO to manage these debts.
The Government’s announcement has now hit print in the form of draft legislation called the Treasury Laws Amendment (Tax Transparency) Bill 2018 that will amend the Taxation Administration Act 1953 (Cth), and an ATO consultation paper called ‘Transparency of Business Tax Debts’.
The ATO says the purpose of reporting tax debts is to:
- help the business community and credit providers make informed decisions about the creditworthiness of a business;
- reduce the unfair competitive advantage a non-tax paying business has over other businesses; and
- encourage recalcitrant businesses to engage with the ATO about their tax debt.
When will tax debts be reported?
3 criteria must be met before a tax debt can be reported:
- the entity running the business has an Australian Business Number (ABN), and not an excluded ABN – examples of excluded ABN’s include a deductible gift recipient and a government entity; and
- the entity has a tax debt of which at least $10,000 is overdue by more than 90 days – all tax debts (along with outstanding interest and penalties) are considered and combined for this test, and ATO-recovery action in respect of one or more debts may already be underway, although the ATO may delay reporting an entity with a large recent increase in its tax debts; and
- the entity hasn’t effectively engaged with the ATO to manage the tax debt – “effective engagement” will be where there’s a payment plan in place and the entity is complying with it, or where the entity has lodged an objection to a decision to which the tax debt relates, or the entity has commenced proceedings in the Administrative Appeals Tribunal or Federal Court of Australia about the debt (although undisputed debt that meets the 3 criteria can still be reported).
If the 3 criteria are met, then before reporting the tax debt the ATO will:
- give 21-days written notice to the entity running the business that the ATO intends to report it to a credit reporting bureau – this notice gives the entity a last chance to pay the tax debt, or effectively engage with the ATO about the debt, or tell the ATO about any exceptional circumstances preventing the entity from dealing with the debt, or challenge the decision to report; and
- consult with the Inspector-General of Taxation (IGT) to see if the entity has complained to the IGT about having its tax debt reported – no debt will be reported while the IGT is considering a complaint about it.
Which credit reporting bureaus will be told about tax debts?
Only those registered with the ATO, where that registration includes the bureau agreeing to the ATO’s reporting terms. The ATO intends to publish a list of registered bureaus.
When will tax debts be unreported?
An entity’s tax debt information will be removed from its credit report once the entity doesn’t meet the 3 reporting criteria. The information must be removed by the credit reporting bureau within 2 days of a request from the ATO.
If an entity’s tax debt information has been incorrectly reported to or by the credit reporting bureau, the entity will need to take up the issue with the ATO.
When will tax debt reporting start?
The reporting measures are still in draft legislation and submissions about them are due to Treasury by Friday, 9 February 2018.
Given the Government’s keen focus on preventing revenue leakage, and the ATO’s much-increased business tax-debt recovery work across all industries, there’s no reason to think tax debt reporting won’t soon become law.
The measures are intended to be phased in, starting with companies and then over time to include partnerships, trusts and sole traders.
Reporting won’t apply to individuals without an ABN, but it’s worth remembering that individuals may have an ABN for things like rental properties or primary production they run while having a “salary and wages” job at the same time.
What’s the message?
Presumably the Government expects the measures will help flush out recalcitrant taxpayers to report and pay the proper amount of tax, or shut down their failing business as quickly as possible to minimise further debts.
The proposed reporting measures, then, are interesting. On the one hand, the measures permit, but don’t require, the ATO to report tax debt information so if a business owner is proactive in dealing with the ATO about their tax debts, they can avoid being reported. We expect some business owners will work out the minimum level of dealing with the ATO required to be effectively engaged and stave off reporting
On the other hand, effectively engaging with the ATO as relates to payment plans is at the ATO’s sole discretion. There’s no existing legislation about when, how and if the ATO will agree to a payment plan, or things like when the ATO will agree to remit interest. These things fall to ATO administrative practice and procedure, which are ultimately non-binding on the ATO and, frankly, might depend on which ATO officer you deal with.
In short, the draft legislation about the reporting measures covers the theory, but ATO practice notes and guidelines will cover the detail. This wouldn’t be the first time for matters of tax…
Nonetheless, we think the message for business owners is ‘get your head out of the sand, or a handle on your optimism if you’ve got money trouble in your business because ignoring the ATO isn’t going to make them go away – the Government wants to get paid what it’s owed just like any other person in your business.’
For more information contact the Commercial Dispute Resolution Team: