Did you know that the Australian Taxation Office (ATO) has the authority to disclose business tax debts to credit reporting bureaus if they remain unpaid.
This means your unpaid tax debt could impact your credit record and therefore your ability to access finance and secure loans.
In 2022, the Disclosure of Business Tax Debts legislation was introduced which gives the ATO the right to disclose your debt when:
Before disclosing your tax debt, the ATO will notify you and allow you to respond. You will be issued a Notice of Disclosure that outlines the steps you can take to avoid disclosure. This can include paying the debt in full or entering into a payment arrangement.
You are also encouraged to communicate with the ATO. This demonstrates a willingness to manage the debt and a plan can be made for payment.
The ATO sends updated records of outstanding tax debt to credit reporting agencies on a weekly basis.
A disclosed debt can have several repercussions for a small business.
First, your credit record will likely be impacted. A negative mark on your credit report makes it more difficult and possibly more expensive to secure loans, lines of credit and other financing.
Second, your relationship with suppliers might change as some are reluctant to do business with a company that has a poor credit score.
Third, your business may feel financial stress as having limited access to financing can prevent your ability to function adequately. This will likely also slow your ability for growth.
Small businesses can take proactive steps to manage and mitigate the risks of tax debt disclosure.
Monitor your tax obligations: You should regularly review your tax obligations and financial states to avoid getting into any kind of unsustainable tax debt. Using adequate accounting processes and software can help.
Engage with the ATO: It’s important to keep open communication with the ATO. If you are experiencing financial difficulties, contact the ATO early so that you can find solutions such as a payment plan.
Seek professional advice: Getting advice from tax professionals or financial advisers can give you a strategy that is tailored for your situation. This can help you manage your tax obligations and improve your overall financial health.
If you believe your debt is not accurate, you should immediately engage with the ATO’s dispute resolution process. The ATO offers several options for dispute resolution for small businesses, including:
By staying informed and taking the necessary steps, you can reduce the risk of ATO tax debt disclosure and protect your business's financial wellbeing. Remember, getting professional help from a tax adviser or accountant can be helpful, especially in complex situations.
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