The Federal Government has released an exposure draft, the “Treasury Laws Amendment (Tax Transparency) Bill 2018”, which will allow taxation officers to disclose the tax debt information of business entities to credit reporting agencies.
Under the proposed law, the tax debt information of an entity will be disclosed to credit reporting bureaus if it:
- is a registered business with an Australian Business Number (ABN);
- has unpaid tax of at least $10,000 for more than 90 days;
- is not “excluded entities”;
- is not effectively engaging to manage its tax debt; and
- has been confirmed by the Commissioner of Taxation from the Inspector-General of Taxation that it is not subject to an investigation.
The bill will also affect small business entities including sole traders, partnerships, companies and trusts that have taxable income of around $37,000 with an income tax base rate of 27.5%. The Federal Government expects that these amendments to the Tax Administration Act 1953 will encourage taxpayers to effectively settle their tax liabilities with the Australian Taxation Office (ATO).
The consequences of having your tax debt information disclosed to credit reporting bureaus can potentially be very serious. This could result in poor credit rating and lead to difficulty in accessing finance, which may cause ramifications on the cash flow of your business.
The Federal Government released the exposure draft legislation and exposure draft legislative instrument on ‘Transparency of Business Tax Debts’, with accompanying explanatory materials in January 2018. This legislation would allow the ATO to report the tax debt information of business entities that do not effectively engage with the ATO to manage those debts, to registered credit reporting bureaus (CRBs). The proposed law aims to improve transparency in the business community, by making overdue tax debts more visible to businesses and credit providers, enabling them to make a more complete assessment of the creditworthiness of a business. The disclosure is, however, subject to procedural conditions and safeguards that the Commissioner must satisfy before the tax debt information of a business entity is disclosed to CRBs.
The following are the core criteria for determining the class of entities that will be affected by the proposed legislation:
- the entity is registered in the Australian Business Register;
- the entity has a tax debt, of which at least $10,000 is overdue for more than 90 days;
- the entity is not ‘an excluded entitiy’;
- the entity is not effectively engaging to manage their tax debt; and
- the Commissioner of Taxation (the Commissioner) has taken reasonable steps to confirm that the Inspector General of Taxation (the Inspector-General) does not have an active complaint from the entity that is, or could be, the subject of an investigation by the Inspector-General relating to the Commissioner’s intention to disclose the tax debt information of the entity.
‘Excluded entities’ are deductible gift recipients, not-for-profit entities, government entities and complying superannuation entities.
Impact to Entities
An entity’s tax debt information will be disclosed by a taxation officer to CRBs if it has a tax debt of at least $10,000 that is overdue for more than 90 days. Whilst the Government claims that this threshold will only impact entities carrying a significant overdue tax debt this, however, will also affect small business entities including sole traders, partnerships, companies and trusts that have, for example, taxable income of around $37,000 at an income tax base rate of 27.5%.
The proposed law is expected to reduce unfair financial advantages obtained by businesses that do not pay their tax on time and to assist in more informed decision making to entities, when making complete assessments of the credit worthiness of a business.
The Explanatory Memorandum stated that the consequences of having the tax debt information disclosed to CRBs can potentially be serious. This could result to poor credit rating and lead to difficulty in accessing finance, which may cause broader ramifications for a business. The Government expects that businesses will be encouraged to engage with the ATO in resolving their tax debts, or motivate some to promptly comply with their tax obligations to prevent their tax debt information being reported.
Procedural Conditions and Safeguards
Most entities pay their tax on time and manage their tax debts, but sometimes there are exceptional circumstances outside the taxpayers’ control that they were unable to do so.
The legislative framework will include procedural conditions and safeguards that the ATO must satisfy before disclosing an entity’s tax debt information. In response to these requirements from the proposed legislation, the ATO released their administrative approach which outlines how they intend to administer the disclosure of tax debt information to CRBs.
Procedural conditions and safeguards include notifying the entity in writing at least 21 days before reporting its tax debt information for the first time, and having access to an independent ATO review process if it disagrees that it meets the criteria for reporting or if they have exceptional circumstances.
Credit Rating Report
The tax debt information of an entity remains in CRBs credit rating report until the entity has paid its tax debt or entered a payment plan with the ATO. If an entity no longer meets the criteria for reporting, the ATO will instruct the CRBs to remove its tax debt information from public access and credit report. Once removed, the information will not show in the entity’s credit report or credit history, which is different from the standard credit reporting industry approach where the information will remain visible for a much longer period (generally 5 years).
If you need further information on the proposed bill or assistance with your business tax obligations, contact us on 1300 88 33 92.
9 March 2018