The Australian Tax Office (ATO) now has a new power to add to its already impressive arsenal, being the power to disclose the tax debt information of businesses to registered Credit Reporting Bureaus.

This power was granted to the ATO on 21 February 2020 as part of the Government’s broader strategy to reduce overdue tax, encourage engagement with the ATO, and improve overall transparency. The ATO claims that the measure will ‘support more informed decision making within the business community by making large overdue tax debts more visible’. They further claim that it will address the unfair advantage which businesses obtain by failing to meaningfully engage with the ATO.

The ATO’s criteria for disclosure is:

The business has an ABN, but is not an ‘excluded entity’ (i.e. a registered charity, government entity, deductible gift recipient, or complying superannuation entity);
The business has one or more tax debts, of which at least $100,000 is overdue by more than 90 days;
The business has not effectively engaged with the ATO in managing its tax debts; and
The business does not have an active complaint with the Inspector-General of Taxation concerning the proposed reporting of the business’s tax debt information.

A business that satisfies that criteria then has 28 days from the date of the ATO notification to engage with the ATO and manage its tax debt.

This new power can have a profound commercial effect, particularly on small businesses.

Standard credit defaults generally remain as a black mark on credit reports for a period of five years and have a detrimental effect on the ability to secure or maintain financial support from banks and other credit suppliers. Whilst ATO reported tax debts will only remain visible on a credit report for as long as they meet the above criteria, the default could have disastrous effects for businesses who lose credit eligibility based on the ATO’s report.

Considering the potential ramifications of this new reporting power on a business, it remains to be seen how it will be used by the ATO with respect to debts that are in dispute. However, it does highlight the need for businesses to engage early and often with the ATO when faced with an unpaid tax debt.

Cove Legal provide specialist advice to clients facing possible insolvency outcomes or facing actual or threatened ATO debt action. If you are attempting to address director personal liability issues, director penalty notices, garnishee orders, winding up applications, statutory demands or need advice on an insolvency situation generally, speak to us today.

Roger Blow, Practice Director Ph: +61 8 6381 0326, or e: roger@covelegal.com.au

This publication is not intended to provide and does not provide legal advice. You should seek professional legal advice relating to your specific situation(s) before taking any action based upon its contents.

This week saw another significant WA company, RCR Tomlinson, placed into the hands of Administrators. https://www.perthnow.com.au/business/contracting/engineering-firm-rcr-tomlinson-collapses-appoints-administrators-ng-b881028755z

According to recent ASIC figures 2,182 companies across Australia entered into external administration between July to September 2018, a 4.5% increase on the same period in 2017.

The statistics also identify that roughly one third of companies are found to have traded insolvent for over 2 years prior to the appointment of an external administrator. Of most concern is the current rate of 92% of liquidations resulting in nil dividends for unsecured creditors and less than 1% achieving more than 50c in the dollar.

Those statistics need to be considered against the backdrop of more aggressive collection strategies from the ATO, with an increase in the use of garnishee notices, Director Penalty Notices and seeking security over personal director assets before entering into payment plans for company tax debts.

#garnishee #DPN #directorliability