The Federal Government recently released its mid-year Economic and Fiscal Outlook in which it announced its enhancements in the integrity of the tax system by allowing the Australian Taxation Office (“ATO”) to disclose to credit reporting bureau’s the tax debt information of businesses who have not effectively engaged with the ATO to manage these debts. This will be a new weapon in the ATO’s armoury in its attempt to reign in over $19B in overdue taxes, of which approximately two thirds is owed by small businesses with turnover below $2M.
It is proposed that initially these new powers will only apply to businesses with an Australian Business Number and outstanding tax debts of more than $10K that are at least 90 days overdue.
During recent years we have seen several amendments made by the ATO in an attempt to recover overdue tax liabilities, including but not limited to:
- Changes to the director penalty regime where by directors become automatically liable for certain tax debts, including PAYG withholding and Superannuation Guarantee, where amounts remain unpaid and unreported within three (3) months of the due date for lodgement; and
- A reduction in the threshold at which it will pursue small businesses that owe tax debts from $300,000 to around $30,000.
Despite these amendments, they have had no real influences on businesses who are continuing to trade using the tax liability as a source of immediate cashflow funding for their businesses.
Things are about to change however, as defaults being recorded on a tax payer’s commercial credit file will have immediate and long lasting consequences to a defaulting tax payer. The default will be recorded as a black mark on the tax payer’s commercial credit file that lasts for five years and may pose problems to tax payers needing support from current and future financiers and suppliers.
Having regard to the potential ramifications for small and micro businesses as a result of the ATO’s new powers, it will be imperative for businesses with overdue tax debts to engage with the ATO in a timely manner to effectively manage unpaid taxes.
Should you and/or your clients be experiencing financial distress and unable to attend to the payment of your outstanding tax liabilities, then it is imperative that professional advice be obtained immediately to avoid further ramifications.
Shaw Gidley are experts in restructuring, turnaround and insolvency and provide free initial advice on these matters. Please contact our offices on (02) 4908 4444 or (02) 6580 0400.