ATO to chase up overdue tax debt
As of 21 February, the ATO has a new weapon in their fight against unpaid tax debts – something businesses will want to pay attention to!
It’s well-known (though never encouraged) that, if a SME is tight on cash, they may rely on the ‘bank of ATO.’ This means they put off paying their ATO debt for as long as possible and instead prioritise paying other creditors.
Unfortunately the ATO wants to exit the banking business.
They want to avoid being seen as a ‘line of credit’ for small businesses and are cracking down on tax avoidance. In doing so, legislation came into force this month that allows the ATO to disclose small business’ tax debt to credit reporting agencies.
This will only affect businesses if they:
- Have more than $100,000 in tax debt that is overdue by more than 90 days
- Have an Australian business number
- Have not set up or negotiated a payment plan with the ATO to manage the debt
- Do not have a complaint about the proposed reporting of the entity’s tax debt information under investigation by the ATO
The Federal Government advertises this legislative change as an initiative to support informed decision-making within the business community, so creditors have a more holistic perspective of a business’ finances before agreeing to terms.
They also advertise this as an opportunity to reduce the unfair advantage obtained by businesses who do not pay their tax on time – why should they get a free pass… right?
But many of us know, when running a small business, 90 days can fly by and we’ve probably all experienced the difficulty of forecasting cash flow.
Scottish Pacific’s most recent SME Growth Index found that 27.8% of respondents said meeting tax payments promptly would create cash flow issues in their business. Considering the ATO was owed $15.1 billion in tax debt from small businesses as of 30 June 2018, there is a large void to be filled.
Industry experts have predicted this will generate an unfavourable impact on credit ratings and credit insurance limits and make it more difficult for small businesses to maintain or extend credit terms with suppliers.
If you think your business will be affected by this legislative change, now is a good time to ensure you have a sustainable funding structure in place for your business and avoid being referred to credit reporting agencies.
Silver Lining
This move is merely intended to encourage small businesses to pay their debts on time – or at least to engage in a payment plan. The ATO won’t be too unreasonable with their crackdown and is allowing some buffer time; businesses that meet the reporting criteria will be notified in writing and given 28 days to engage with the ATO before having their tax debt information reported.
Nevertheless, it’s important you consider what implications this may have for you before the next reporting period.
More info about this legislative change via ATO.
Find out more about managing cash flow from a previous blog post of ours: “How can I have a tax bill if there’s no money in the bank?!” Understanding the importance of cash flow
