The ATO is currently owed more than $19 billion in overdue tax. Of this, approximately two-thirds is owed by small businesses (those with a turnover of less than $2 million). This presents a delicate balance for the ATO and Government with the need to protect Government revenue coming up against the desire not to send businesses ‘to the wall’ and the flow-on costs that come with that (unemployed staff etc).
However, in the Mid-Year Economic and Fiscal Outlook (MYEFO) it would seem that the Government has had enough, announcing a rather dramatic debt measure that all business taxpayers should take note of.
In MYEFO,which is the Government’s mid-year Budget update in December, it was announced that where an entity meets the following criteria in relation to an ATO debt, the ATO will be permitted to disclose this debt to Credit Reporting Bureaus:
- You or your business has an ABN
- Your debt is more than $10,000
- Your debt is more than 90 days old and
- You have not engaged the ATO in respect of repaying the debt.
This is a big shift from current practice where the consequences of not paying ATO debt have no real tangible impact on your day-to-day operations other than the incurring of a General Interest Charge (currently 8.75% compounding daily) and the issuance of a Director Penalty Notice requiring company directors to personally pay outstanding PAYG Withholding and Superannuation Guarantee Charge. By contrast, the implementation of this new policy (which at the time of writing (March) is set to go ahead) could have profound effects for a small business. Credit default ‘black marks’ last for five years. In the worst of cases, support from financiers may be withdrawn and supplier credit stopped.
This change does not require legislative passage through the Parliament. As such the ATO is free to implement this policy from 1 July without Parliamentary approval. Given the profund consequences of a 5-year credit ‘black mark’ on a business (potentially drying up finance) we would strongly recommend that businesses who meet the above criteria with respect to a current ATO debt either (a) repay the debt to at least below the $10,000 threshold or (b) enter into a payment arrangement with the ATO before 1 July 2017. Indeed, irrespective of whether the above conditions are met, it’s always best practice to engage with the ATO by entering into a payment arrangement. Having a record of cooperation and compliance can assist in future ATO dealings in respect of extensions/leniency etc.
The good news is that the ATO is very flexible with payment arrangements – they will generally make every effort to accommodate your requirements. The ATO can also offer interest-free repayment plans to some small businesses in relation to Activity Statement debt. To enter into a payment arrangement, you should phone the ATO on 13 28 66 or get your Accountant to contact them on your behalf.
The ATO provide further guidance on help with paying debts at https://www.ato.gov.au/general/paying-the-ato/help-with-paying/
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