Australian businesses that fail to cooperate with the Australian Tax Office (ATO) in paying back substantial tax debt could have their information shared with credit reporting agencies under new reforms proposed by the Federal Government.
Presented to parliament by Assistant Treasurer, Michael Sukkar, late last month, the Treasury Laws Amendment (2019 tax integrity and other measures) bill would allow the ATO to pass on tax debt information of non-cooperating businesses to credit reporting agencies - potentially affecting credit scores.
However, the new laws would only apply to businesses:
• With tax debt that totals over $100,000 and is overdue by 90 days
• That aren’t engaging with the Tax Commissioner or legally appealing the debt
"The Morrison government is introducing changes that will amend the tax legislation to stop tax avoidance, protect the integrity of Australia’s tax and superannuation systems, and save businesses time and money through implementing an electronic invoicing framework," said Sukkar.
"This will reduce the unfair advantage obtained by businesses who do not pay their tax debts and will encourage businesses to engage with the ATO to manage their tax debts."
Beyond the ‘Bank of ATO’
So just how common is it for Australian small businesses to be holding a tax debt?
ATO figures published in the Sydney Morning Herald last month revealed that small businesses made up 800,000 of the 1.1 million tax debt payment plans undertaken by taxpayers in the 2017/18 financial year.
That’s backed up by figures provided by online business lender Moula. Moula found that 40% of businesses with one of their loans were engaged in some sort of tax payment arrangement with the ATO.
And according to Moula CEO, Aris Allegos, if the proposed reforms do come into practice businesses are likely to look for funding alternatives to the ‘Bank of ATO’ rather than risk damage to their credit scores.
(Image: Moula CEO, Aris Allegos)
“The Federal Government’s crackdown on businesses failing to pay significant tax debts by disclosing them to credit reporting agencies is likely to prompt risk-averse business owners to move quickly in seeking alternative funding to avoid being referred to credit reporting agencies,” he said.
“The ATO has long been viewed anecdotally as the fifth largest SME bank in Australia, with tax debt used pragmatically as a form of affordable working capital. But the new rules flag the end of an era for businesses who allow their tax debts to run up over $100k and past 90 days without engaging with the ATO.”
Interested in giving your opinion? As part of the consultation process businesses and other parties have until August 21 to submit comments and responses to the proposed changes.
Until then, catch up on the new 2019/20 financial year small businesses tax changes, or if your business is in need of some extra funding to buy new equipment, hire staff or finance debt then check out the hot business loans deals below.