In the fine print to the federal government’s December ‘Mid-Year Economic and Fiscal Outlook’ (MYEFO) was the advice that:
“From 1 July 2017, the Government will allow the Australian Taxation Office (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. The ATO does not currently provide this information.
This measure will initially only apply to businesses with Australian Business Numbers and tax debt of more than $10,000 that is at least 90 days overdue.”
There is not a lot of detail currently available regarding implementation. What will “effective engagement” with the ATO mean? Will it be automated to be applied in all instances or a tool to be used selectively? There have at least been media reports that “the ATO will notify a business that it intends to refer its tax debt to a credit bureau before it passes on the information” meaning there is expected to be forewarning.
The obvious impact of referral to a credit bureau is that the options available for companies to deal with tax debts by refinancing may be hampered or lost, if they permit the management of a tax debt to get out of hand. Creditors who regularly conduct credit checks or subscribe to a credit check service could tighten credit terms in response to notifications pertaining to outstanding tax debts, which may lead to greater cashflow and liquidity issues. From the creditor’s perspective, it means scheduling such regular credit checks on material debtors is likely to become an even more valuable bad debt prevention practice.
The ATO is well-established as being an active creditor in respect of enforcing their claims. A survey conducted in 2011 found that the ATO was the petitioning creditor in 52% of court windings-up! Our experience since that date would indicate little has changed and the ATO remain a most active creditor.
Directors should be aware that changes in 2012 to the Director Penalty Notice provisions made directors personally liable for unpaid and late-reported or unreported PAYG and Superannuation accounts. Personal liability often cannot be remitted by the appointment of an Administrator. For amounts that remain unreported, the ATO can issue notices based on estimates. Our previous blog on Director Penalty Notices has more detail regarding these provisions.
A poor compliance record (extending to the compliance history of related parties or entities) is also a key decision metric used by the ATO when considering a proposal for a Deed of Company Arrangement. This means that poor compliance may in practical terms also restrict access to statutory restructuring provisions in instances where the ATO is a significant creditor in the administration. A company’s compliance record is also relevant to being granted requests for a payment arrangement with the ATO for outstanding taxation obligations.
It has always been that seeking early advice from registered specialist advisors and making early intervention provides more options, resulting in better outcomes for all stakeholders generally. These incremental ATO changes to its debt collection policies only reinforce the case for early advice.