The last few years have been tricky for many businesses due to COVID and it’s understandable that many organisations have fallen behind on their tax payments.
However, with the severe impacts of COVID diminishing, the Australian Tax Office is taking steps to start reducing the many billions (yes, billions) of dollars in tax debt. It will be looking to individuals, corporations and small businesses to recoup outstanding amounts.
As part of this, major credit reporting agencies have signed agreements with the ATO. The result of these agreements is that companies including CreditorWatch and Equifax will now be able to access and report tax default data.
What this means
Credit reporting companies are relied on by mortgage brokers and lending institutions like banks who want to assess an individual or business’s suitability for a loan.
These companies keep a ‘score’ on consumers and businesses, based on the amounts they owe, how many bills they have overdue and how often they make payments. When you apply for a loan, your credit score factors into the decision.
In the past, tax debt has not been included in credit scores. But this has now changed.
If you are a business owner who:
- Owes more than $100,000 in tax
- Has owed this amount for more than 90 days
- Is not engaging with the ATO to manage your tax debt
- Doesn’t have an active complaint with the Inspector-General of Taxation Ombudsman (IGTO)
It’s more than likely that lenders will be notified when you apply for a loan.
The types of business tax debt that will be captured into the tax debt disclosure threshold include:
- Income tax debts
- Activity statement debts
- Superannuation debts
- Fringe benefit debt
- Penalties and interest charges
As shared by Accountants Daily, “Equifax’s general manager commercial and property services Scott Mason said the data would be incredibly valuable to customers because tax debts were often the last “bill” that businesses paid.”
He added that, “Understanding a company’s tax information is a vital piece of the puzzle for organisations wanting to manage their credit risk in relation to new and existing customers.”
It does make sense for lenders to have access to a complete picture of existing debt when it comes to approving loans. Being better informed will reduce the risk of defaults and businesses ending up in additional financial strife.
What to do next
If your business has an outstanding tax debt of over $100,000 and you have been investigating the possibility of a loan, there are a few steps you can take.
If the amount you owe can’t be changed, you’ll need to engage with the ATO to work out a payment plan. Crest Lawyers can negotiate this arrangement for you. Having a plan in place will prevent the ATO from repeatedly following up with you, and you won’t end up with a default on your credit score.
Often, the ATO will treat tax debt like a loan. It will charge interest but be ok with you making monthly repayments. The challenge for you as a business owner is ensuring you’re not ‘kicking the can down the road’ and accumulating more tax debt while you try to pay off the outstanding amount. Again, having a good accountant can help you avoid this problem.
If your tax debt is out of control, you may need to investigate a restructure. The team at Crest Lawyers can help you figure out the best way to reshape your business so your creditors are satisfied and you can continue to operate.
Don’t let tax debt impact your business. Get in touch with our team today.
Disclaimer: The content contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for legal advice.