Are you at risk of the ATO disclosing overdue tax debts to credit reporting bureaus?

Businesses with overdue tax debts of more than $100,000 may have their tax debt information reported to credit reporting bureaus by the Australian Taxation Office (“ATO”), following a new tax debt disclosure measure enacted in October 2019.

While the regime took effect from February 2020, its implementation was delayed in response to COVID-19. Entities that have engaged with the ATO to manage their tax debts will not affected by this measure.

Overview of current and new rules

The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019 (the “Bill”) was enacted in October 2019. The Bill gives the ATO the power to disclose a businesses’ tax debts to credit reporting bureaus where the amount thereof is $100,000 or more. This is a significant new power in addition to the ability to impose for failure to lodge on time penalties and general interest charges on unpaid debts.

The Taxation Administration (Tax Debt Information Disclosure) Declaration 2019 (available here) sets out the classes of entities whose tax debt information may be disclosed to credit reporting bureaus by the ATO. The ATO may disclose a business tax debt if all of the following criteria are satisfied:

• the entity is registered in the Australian Business Register;
• the entity has total tax debts of at least $100,000 that have been outstanding for more than 90 days;
• the entity does not have an active complaint or investigation with the Inspector-General of Taxation (“IGOT”) in relation to the disclosure of tax debt information of the entity; and
• the entity is not engaging with the ATO to manage a tax debt or has not taken action in accordance with the law to dispute the debt

The regime does not apply to excluded entities such as deductible gift recipients, complying superannuation funds, registered charities or government entities.

What are “Tax Debts” for the purpose of ATO debt reporting?

The term ‘tax debt’ includes the total amount of outstanding income tax debts, activity statement debts, fringe benefits tax debts, superannuation debts, penalties and interest charges as well as amounts due under a court order.

Recent ATO activities

Although the measure applied from February 2020, the ATO took a lenient approach to enforcement due to the impacts of COVID-19. However, from August 2021, the ATO started issuing notices alerting businesses with tax debts of more than $100,000 of the ATO’s intent to disclose tax debt information to credit reporting agencies unless the taxpayer engaged with the ATO to manage their tax debts within 28 days.

As businesses start to recover from the impacts of the pandemic, the ATO is expected to resume its debt collection activities.

What should taxpayers do if they receive a notice from the ATO?

Taxpayers who receive a notice from the ATO will need to take prompt action should they wish to avoid disclosure of their tax debts. Potential options include negotiating a sustainable payment plan with the ATO, seeking an extended deadline to pay the tax debts within a reasonable timeframe, or, if they believe the reported tax debt balance is incorrect, formally requesting the ATO to review the amount thereof.

If taxpayers are dissatisfied with outcome of a review by the ATO, they can lodge a complaint with the IGOT in relation to the tax debt. Any active complaint made to the IGOT should prevent the ATO from disclosing the debt for the duration of the investigation.

What are the next steps?

Clients should contact their Pitcher Partners representative to review their existing or projected tax debts and determine whether they are likely to meet the debt disclosure criteria.

It is critical that taxpayers engage with the ATO to manage their tax debts and obligations as early as possible and consider the available options to manage their tax debts to avoid disclosure of business tax debts to credit reporting bureaus. Reported tax debt information can remain on commercial credit reports for up to five years, even if the debt is subsequently paid.