Individuals and businesses with cash flow difficulties sometimes use the ATO like a bank overdraft. They deliberately don’t pay their taxes on time and whilst they may incur interest in doing so, it allows them to use the monies owing to the ATO for other purposes.
Up until now, the ATO have been very slow at chasing outstanding monies owing to it but this may change. Soon they will be able to disclose tax debt information to credit reporting bureaus which may have serious and inescapable consequences.
The 2016-17 Mid-Year Economic and Fiscal Outlook included two key tax changes, one of which allows the ATO to disclose to credit reporting bureaus the tax debt information of businesses that have not effectively engaged with the ATO to manage these debts from 1 July, 2017.
The measure will initially only apply to businesses with Australian Business Numbers and a tax debt of more than $10,000 that is at least 90 days overdue.
CreditorWatch managing director Colin Porter said businesses that fail to address outstanding tax debts prior to 1 July 2017 should expect their credit rating to be adversely affected.
As a consequence, many Banks and Lenders have been requesting further information on ATO debts and payment arrangements, as part of their due diligence process when reviewing or assessing new loan applications.
The prevailing stance amongst prudent business and commercial credit providers is clients with ATO debts represent a greater credit risk due to not adequately planning to meet their ATO commitments.
Whilst negative Credit Bureau reporting represents the consequence of neglecting ATO commitments, best practice moving forward for business owners would entail adequate tax and cash flow planning, affording the ATO with the same level of respect as any other creditor.
If you have any concerns around your tax position, ATO debt management or preparing your business for further funding advances, please contact your advisor at Moore Stephens.
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