New law – disclosure of business tax debts

Late last calendar year, the federal government passed a law that allows the Australian Taxation Office (ATO) to disclose the outstanding tax debt information of businesses to registered credit reporting agencies and bureaus (CRAs).

This new law now enables CRAs to prepare, update or issue credit worthiness reports in relation to the relevant taxpayer. A limited range of exceptions applies to the disclosure of tax debt information.

Entities that fall within the declared class of taxpayers subject to this new tax debt disclosure law are as follows:

  1. entities registered in the Australian Business Register (other than deductible gift recipients, complying superannuation funds, registered charities or government entities);
  2. entities with one or more federal tax debts, of which at least $100,000 is overdue by more than 90 days. This threshold has been criticised as being far too low to have such tax debt information disclosed to CRAs;
  3. entities that are not effectively engaging with the ATO to manage their tax debts; andd) entities with no active complaint concerning the disclosure of tax debt information of the entity that is, or could be, the subject of an investigation by the Inspector-General of Taxation (the Commissioner of Taxation must take reasonable steps to confirm this with the Inspector-General of Taxation).

If an entity meets all the above criteria, it will be notified in writing and provided with 28 days to engage with the ATO and take action to avoid having its tax debt information reported.

In circumstances where an entity is effectively engaging with the Commissioner of Taxation in order to manage a tax debt or take action in accordance with the law to dispute the debt, that tax debt will not be considered in relation to whether the total tax debt of at least $100,000 has been overdue for more than 90 days. This is the main way to ensure that the ATO does not disclose such information to CRAs.

By passing this law, the government aims to do the following:

  1. encourage taxpayers to engage with the ATO to manage their tax debts and, where a business is unable to pay a tax debt in full and final satisfaction of the debt by the due date, enter into a sustainable payment plan that is agreed between the ATO and the taxpayer;
  2. support more informed decision-making within the business community by making large overdue tax debts more visible; and
  3. reduce the ‘unfair advantage’ obtained by taxpayers who do not pay their tax on time and do not manage their debts effectively by engaging with the ATO (subject of course to the Commissioner’s late payment penalties, which are significantly higher than the current bank bill rate).

The bottom line is that this new law will require taxpayers with tax debts to begin effectively managing them with the ATO.

For any advice or assistance regarding this new law, please contact your Cornwalls representative or someone from the Cornwalls Tax team.

Disclaimer
This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.

The Authors

Dennis Tomaras

PARTNER, MELBOURNE

Ellen Karakoussis

LAWYER, MELBOURNE