Law allowing the Australian Taxation Office (ATO) to disclose tax debt information of businesses – corporate and personal, over AU$100,ooo in debt – to registered credit reporting bureaus (CRBs) commenced on 21 February 2020.[1]
There is already a similar scheme in New Zealand, with a threshold of NZ$150,000.
According to the Australian Explanatory Memorandum
‘this will allow tax debts to be placed on a similar footing [to] other debts, strengthening the incentives for businesses to pay their debts in a timely manner and effectively engage with the ATO to avoid having their tax debt information disclosed.
The amendments will reduce unfair financial advantage obtained by businesses that do not pay their tax on time and contributes [sic] to more informed decision making within the business community by enabling credit providers to make a more complete assessment of the credit worthiness of a business’.
Credit checks up until now
Credit checks up until now would not have shown anyone who was dealing with a business that it had large unpaid tax liabilities, which would be an indicator of its lack of financial credentials. So many businesses have used the ATO as their unofficial but very supportive bank, holding on to taxes that should be remitted to the ATO. In many a liquidation, there has often been an unwelcome surprise of ordinary creditors to find that they are dwarfed by large accumulated tax liabilities.
How it will work
In Disclosure of business tax debts, the ATO explains it will only disclose tax debt information of a business to a CRB if the business meets all of the following criteria:
- it has an Australian business number (ABN), and is not an excluded entity
- it has one or more tax debts, of which at least $100,000 is overdue by more than 90 days
- it is not effectively engaging with the ATO to manage its tax debt, and
- the Inspector-General of Taxation is not considering an ongoing complaint about the proposed reporting of the entity’s tax debt information.
The ATO will notify a business in writing if they meet the reporting criteria and give them 28 days to engage with the ATO and take action to avoid having its tax debt information reported.
The Commissioner is not obliged to disclose tax debt information and says he will apply administrative safeguards above and beyond the legislative safeguards in the bill and legislative instrument, before reporting the tax debt information of a business.
‘Engaging’ with the ATO
Businesses which are ‘engaging’ with the ATO to manage their tax debts will not have their tax debt information reported to CRBs. This means the business:
- has a payment plan in place and is meeting the terms of that plan
- has an active Part IVC objection[2] against a taxation decision to which its tax debt relates
- has an active review with the Administrative Appeals Tribunal (AAT) or an active appeal to the Court against a decision to which its tax debt relates
- has an active reconsideration of a reviewable decision which may affect the quantum of a non-complying superannuation fund’s tax debt with the relevant regulator
- has an active review with the AAT a reviewable decision which may affect the quantum of a non-complying superannuation fund’s tax debt, or
- has an active complaint lodged with the Inspector-General of Taxation in relation to the tax debt that is, or could be, the subject of an investigation.
The ATO says it will notify a business in writing if it meets the reporting criteria and give it 28 days to engage with the ATO and take action to avoid having its tax debt information reported.
The ATO will only provide information to CRBs if they are registered with the ATO and have entered into an agreement detailing the terms of their reporting.
New Zealand
New Zealand already has a similar law, under section 85N of the Tax Administration Act 1994. It allows Inland Revenue to share “reportable unpaid tax” debt information with approved Credit Reporting Agencies. Current Inland Revenue policy is that only companies are subject to the new law. See Information Sharing with approved Credit Reporting Agencies.
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[1] Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Act No: 95 2019External Link; Taxation Administration (Tax Debt Information Disclosure) Declaration 2019
[2] Under the Taxation Administration Act 1953
