Does your business owe ATO tax?

If your operation owes the tax office $100,000 or more, details of your debt could be passed on to credit reporting agencies by ATO.

A debt of this size showing up on your credit report might seriously affect your ability to borrow, potentially putting your future business plans in jeopardy.

Read on to discover more about ATO’s toughened stance on non-payers, how this may affect your business and what action you can take to reduce your risk.

In the first instance, ask the specialist tax strategy team at Pherrus Financial Services for a FREE business health check.

ATO is toughening its stance on tax debt

Over the past year and a half, ATO has relaxed its traditional stance on delayed or missing tax payments.

In response to the COVID pandemic, ATO suspended its usual tax collection regime.

In addition, a number of measures were put in place with the intention of supporting businesses whose operations had been disrupted.

Unfortunately, for many businesses, trading problems brought about by the pandemic show little sign of resolution.

Many areas are still living with pandemic-related restrictions that continue to affect trade.

Fluctuating demand for goods and/or services, alongside staff shortages due to quarantine regulation and difficulties in obtaining materials because of supply chain failures, result in a large number of companies facing ongoing difficulties.

For these traders, ATO’s hardening stance on tax debt adds to the challenges they already face.\

business man looking up at question what is tax debt

What is tax debt?

Tax debt meaning is usually taken to be the inability to pay the tax you owe ATO on time, or in the instalments agreed with the tax office.

man looking at internet on computer on an answer to question what is ATO going to do about his company tax debt

What is the ATO going to do with respect to unpaid tax debt?

Back in 2019, the federal government approved a rule that gave ATO the power to report unpaid Business tax debts of $100,000 overdue by more than 90 days to credit bureau agencies.

Whilst ATO chose not to enforce this rule during the height of the pandemic, it’s now decided that the time is right to take a firmer line on non-payers.

When ATO forwards a company’s debt details to Credit Reporting Bureaus(CRBs), the debt appears on a company’s credit file.

Every time a credit check is completed, for example, during a loan application process or when applying for a mortgage, the tax debt will appear.

Unpaid debt on a credit file can significantly lower the company’s credit score, making it difficult (or, in some cases, almost impossible) to obtain credit.

Particularly if your future business plans rely on borrowing, a tax debt on your corporate credit file could have serious implications.

If this applies to you, we strongly recommend contacting Pherrus in the first instance for a FREE business health check.

are there conditions on tax deb being forward to credit agencies

Are there any conditions on tax debt details being forwarded to credit agencies by the ATO?

In a word, yes!

The threat of forwarding tax debt details to credit agencies is intended by ATO as a last resort for consistent and persistent non-payers.

Their guidance specifically states that “If you’re already engaged with us to manage your tax debts, your information will not be reported to CRBs (Credit Reporting Bureaus)”.

The message from this is clear – ATO won’t refer your debt details to a credit agency if you get in touch with them to make repayment arrangements.

If you owe ATO tax money, it’s vital that you contact them as a matter of importance to discuss repayment arrangements.

Ideally, businesses should be putting aside sufficient money to meet their tax obligations throughout the year.

They should also have clear, accurate financial information relating to their current trading situation, enabling sensible predictions on tax obligations to year-end (and beyond).

If your business doesn’t have this information to hand, it’s going to be difficult to come up with a tax debt payment plan that you can be confident of sticking to.

Given how important it is to commit to a workable repayment plan, if you’re in any doubt about how much you can afford to pay, we recommend getting expert accountancy assistance.

Why not get in touch for a FREE business health check to see how we could help?

Note that if you are in a dispute with ATO over the amount of tax you owe (i.e., you have submitted a complaint to the Inspector-General of Taxation Ombudsman), no further action will be taken by ATO on processing your debt until the complaint has been resolved.

There are also a number of organisations that are excluded from the threat of debt disclosure to CRBs.

If your organisation is a public sector entity, a registered charity, a deductible gift recipient or a complying superannuation fund, it is exempt from tax debt disclosure.

man shurgging shoulders wondering if he is at risk of ATO disclosing his tax debt to CRB

How will I know that my business is at risk of tax debt disclosure to CRBs?

ATO has indicated that they will write to affected companies, giving them twenty-eight days from the date of the letter to contact ATO with repayment plans.

If your company has received one of these letters, it’s important to take action; don’t leave it until it’s too late!

Business tax debt help is out there; give us a call for a FREE business health check to discover more about your options.

man looking at computer wondering what he should do about tax debt letter from ATO

I have received a notice letter from ATO regarding tax debt disclosure to CRBs – What should I do?

If you have received a letter from ATO, it’s important not to ignore it. One of the first things to ascertain is whether the amount stated by ATO is the amount of tax that you actually owe.

From late tax return submissions through to missing tax information, failure to deduct all your expenses, or simply not having all the information you need to create an accurate tax assessment, there are all sorts of reasons why the amount ATO calculates you owe is incorrect.

When you contact us at Pherrus, not only will we provide you with a FREE business health check, but we can also assist with retrospective tax calculations, potentially enabling you to reduce your outstanding ATO balance by a considerable amount.

As well as ensuring you have an accurate figure for your company’s current tax debt, it’s also important to have high-grade financial information moving forward so that you can provide ATO with a suitable repayment figure.

You may also be entitled to business tax debt relief that could reduce your tax obligation – ask us for details.

Unfortunately, in many cases, tax debt arises because the robust systems and processes needed for accurate financial management and reporting aren’t in place.

Before moving forward, it’s essential that your business has the appropriate infrastructure (either in-house or outsourced) to support appropriate financial data collection and reporting.

If you’re not sure that your operation has the capacity to generate the accurate, real-time financial data you need, or you suspect that you’re paying too much tax but don’t know how to prove it, ask us for a FREE business health check. Our team of tax experts will be happy to help.

businessman stressed with glass off holding eyes closed concerned about business tax debt he owes to ATO

My company can’t afford to pay the tax bill and owes more than $100,000 in tax

If you simply don’t have the liquidity to meet your tax obligations, in the short term, it’s possible to avoid having your debt details supplied to CRBs by taking out a tax debt loan from a suitable creditor.

Tax debt loans still have to be repaid and also attract interest (in the same way as the ATO tax debt).

The main benefit of taking out a loan to repay your tax debt is that, provided you keep to the repayment schedule, your company’s details won’t be passed across to CRBs.

This means your credit score won’t be compromised.

For any SME facing tax debt, small business advice from a trusted, experienced advisor is essential.

In our experience, companies facing a $100,000 tax bill that they haven’t (or can’t) make arrangements to pay off are in a serious financial situation. Often, with appropriate assistance and business tax debt advice, it’s possible to turn their fortunes around.

Pherrus Financial Services consists of a skilled team of accountants, financial advisors and wealth creators who are dedicated to providing businesses with the information and tools they need to minimise their tax burden at the same time as optimising their profits.

Whether you’re facing unmanageable tax debt, have received a letter from ATO giving notice of their intention to forward your debt details to CRBs, or simply need an experienced accountant to check you’re not paying more tax than you need to, we can help.

Why not request a FREE business health check with us to discover how your company could reduce outgoings (including tax) and optimise income?

Business Tax Debt Infographic

The Insights published on our website have been written by our professional staff strictly for educational purposes. Please note that the information and views expressed above do not constitute professional advice and are general in nature only.

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