The Australian Taxation Office (ATO), which many businesses have referred to as the “ATO Bank”, has for some time been the source of quick credit. When in need of immediate cash flow, these businesses have delayed the payment of tax obligations such as GST, PAYG or income tax. Recent developments suggest that the ATO may soon get further powers to discourage businesses from engaging in this type of conduct. The proposal is expected to be considered by the Australian Parliament in the coming months and if accepted, will grant the ATO the discretion to disclose the tax debt information of businesses who have not effectively engaged with the ATO to credit reporting agencies.
The proposed changes will look to target the “low hanging fruit” of bad tax payers and bad communicators. Ultimately, businesses that avoid paying their tax obligations on time gain an unfair financial and competitive advantage over those that do. This will have serious implications for businesses that rely on their credit rating to obtain credit from banks or seeking to extend credit terms with suppliers.
From an alternative perspective the proposed changes may provide additional protection to those businesses that rely on credit rating agencies for guidance on who they should provide credit to. Statistically, the ATO are a significant creditor in most business failures and therefore those parties conducting their due diligence, such as banks and suppliers, would no doubt appreciate the additional information disclosed by the ATO.
The ATO would have the discretion to report businesses that have not engaged with them to credit reporting agencies.
The proposed four conditions that will become the catalyst for reporting are:
Based on the current proposal, businesses who are on the front foot with their dealings with the ATO are unlikely to be affected by the proposed changes.
A further relief is that the ATO will notify a business if it intends to refer its tax debt to a credit agency before it passes on the information.
The new proposal provides the ATO Bank with a tool to discourage businesses from using it as a source of cash flow. Businesses who fail the above four conditions run the risk of negatively impacting their credit rating and in turn their ability to borrow and source credit.
If you or your clients have concerns regarding the impact of this new proposal, the team at PKF can assist. Early intervention is key given the proposed conditions outlined above. PKF are available at short notice to provide expert advice on the most appropriate strategy in your circumstances. These strategies may include entering into payment plans with the ATO or a restructure of the business. The benefits of seeking help early are imperative in preparing for the proposed changes.