Draft ATO legislation to level the playing field for businesses

Australian businesses owe the Australian Taxation Office (ATO) a collective $17 billion, with 70 per cent of this debt attributed to small and medium enterprises (SMEs).

But while most businesses that fall behind in their tax payments do so for legitimate reasons – and willingly engage with the ATO to manage their repayments – there is a contingent of businesses that are happy to avoid paying down their tax debt, seemingly with few consequences.

This year, complying businesses are set to benefit from new draft legislation that will allow the ATO to report companies’ overdue tax debts to commercial bureaus.

The legislation will help flush out companies that refuse to pay off their tax debt, taking away the unfair advantage those companies have enjoyed until now.

In addition, the legislation will provide business owners greater insight into the credit profile of a company, allowing them to make a more informed decision about the kinds of entities with whom they want to do business with.

How will the legislation work?

The measures would apply to any company that has an ABN and is not an excluded entity (e.g. charity not-for-profits; government entities; complying super funds), with an outstanding tax debt of more than $10,000 that has been overdue for more than 90 days.

The legislation would only apply to entities that meet these criteria if no arrangement had been entered into with the ATO. The taxpayer would also need to be given 21 days prior notice of the intention to disclose, giving the business enough time to set up a repayment plan with the ATO.

A tiered rollout of the legislation would see the worst non-payers have their tax debt reported on first, and ATO defaults would be removed from a company’s file once any of the criteria listed above were no longer the case.

What does this mean for businesses?

Allowing reporting on overdue tax debt to commercial credit reporting bureaus is expected to encourage better management of overdue tax debts; reduce the unfair advantage of businesses that owe the ATO money and refuse to engage with them; and help better inform the rest of the business community by revealing outstanding debts.

Businesses that have the intent or capability to repay their tax debt are unlikely to be adversely effected by the new measures – and this legislation is a safeguard for the Australian businesses as a whole.

As a matter of course, business owners are encouraged to check the credit file of a potential business they intend to work with, before entering into any agreement. With the inclusion of tax debt on a company’s credit report, business owners can gain a better understanding of current and potential partners, suppliers and customers, helping companies avoid nasty surprises, set the right terms for their business and protect their interests.