The ATO has been increasing its rate of public disclosure of outstanding tax debts from Australian businesses as it seeks to collect the more than $34 billion owed to it by SMEs.
This FAQ will help you understand why the ATO is publicly disclosing tax debts, how it does it and how you can avoid it.
Why has the ATO been disclosing the outstanding tax debts of businesses?
The introduction of the Disclosure of Business Tax Debts legislation in 2022 was intended to bring greater transparency to the ATO’s debt management. The legislation serves several purposes:
- Visibility: Overdue tax debts are made more visible to support informed decision-making within the business community.
- Engagement: Taxpayers are motivated to engage more with the ATO for effective debt management.
- Fairness: The legislation reduces the advantage enjoyed by businesses that do not meet their tax obligations on time.
What information about businesses is disclosed to credit reporting bureaus?
The information shared with credit reporting bureaus includes:
- The business’s ABN
- Legal name, business name
- The type of entity that the business is
- the amount of overdue tax debt.
When will the ATO disclose debts to credit reporting bureaus?
Under the Disclosure of Business Tax Debt measure, the ATO may disclose tax debt information to credit reporting bureaus under specific conditions, some of which include:
- When a business is not engaging effectively with the ATO and has not responded within 28 days of a Notice to Disclose being received.
- Has one or more tax debts at least $100,000 that are overdue by more than 90 days.
- Has an ABN and isn’t an excluded entity.
- The business doesn’t have an active complaint with the Inspector-General of Taxation and Ombudsmen about the proposed reporting of the tax debt information.
Does the ATO register tax defaults against all entity types?
Yes. This includes unincorporated entities such as sole traders, trusts and partnerships. To date, more than 50% of tax defaults have been registered against unincorporated entities.
Where can I find ATO tax defaults?
CreditorWatch customers can find them within credit reports and will also receive alerts when an entity you are monitoring has a tax default registered against it.
How does the ATO define ‘effective engagement’?
Effective engagement extends beyond mere contact and involves achieving outcomes that substantially address tax debt. Active payment arrangements, debt release applications, and pending taxation decisions to which the debt relates (there is an active objection, review with the Administrative Appeals Tribunal (AAT), or appeal to the court) are all considered indicative of effective engagement.
How does the ATO let businesses know that their tax debts will be disclosed to credit reporting bureaus?
Every business that meets the criteria for disclosure will automatically receive a formal Notice of Intent to Disclose from the ATO as soon as they become eligible.
For those businesses that don’t act upon the notice, the ATO will progressively disclose their information, which will be incorporated into their credit scores and credit rating reports by credit reporting bureaus, to be removed when the companies’ debts no longer meet the criteria for disclosure.
What information on outstanding debts does the ATO disclose to credit reporting bureaus for release?
Details disclosed include ABNs, legal status, business names, entity types and overdue tax debt amounts. Credit reporting bureaus that have registered with the ATO and signed a Deed of Agreement and adhere to established standards, such as CreditorWatch, receive tax debt default records for reporting.
How often does the ATO disclose tax debts to credit reporting bureaus?
The ATO sends updated records of outstanding tax debts to credit reporting bureaus on a weekly basis.
When do the credit reporting bureaus have to remove records of debts sent to them by the ATO?
When the updated records are sent the credit reporting bureaus on a weekly basis, the records of those companies that no longer meet the criteria for disclosure are automatically expunged from the companies’ credit files.
What actions does the ATO have at its disposal if a business fails to engage or cooperate in relation to an outstanding debt?
In cases where engagement and cooperation are lacking, the ATO can employ a set of firmer actions to address escalating tax debt situations. These actions can include garnishee notices and director penalty notices.
In some matters, and generally when all avenues of engagement have been exhausted, the ATO may resort to actions such as winding up and bankruptcy. The ATO notes that while it is often a major creditor in corporate insolvencies, and sometimes the only creditor, it is rarely an initiator of insolvency appointments. Most corporate insolvencies are initiated by the company directors or other creditors.
credit management
small business
tax debt defaults
tax debt disclosure
Head of Media & Communications
Michael joined CreditorWatch in July 2021. He has more than 20 years’ experience in business journalism, marketing and communications strategy and digital content development. He is passionate about communicating to the business community how CreditorWatch’s product suite can help them grow and protect their companies.
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