New tax debt transparency laws a 'wake-up call' for small business

Exposure draft legislation for the transparency of business tax debts was released last week, aiming to allow the ATO to disclose business tax debts to credit reporting bureaus where the businesses have not effectively engaged with the tax office to manage their debt.

The criteria for reporting tax debt information will depend if the entity has an ABN, a tax debt of which at least $10,000 is overdue by more than 90 days, and has not effectively engaged with the ATO to manage its tax debt.

The draft legislation requires the ATO to consult with the Inspector General of Taxation before tax debt amounts are reported to credit reporting bureaus.

IPA senior tax adviser Tony Greco said the measures to increase disclosure of tax debts was welcome but warned that some small businesses may be caught off guard.

A lot of lenders, as part of their data collection, already get a snapshot of the debts that are there, that information is already part of their processes but trade creditors in particular — when a business is doing business and they are accumulating trade credits — those providers of trade credit may not be aware of debts of that nature so it will better inform the market about the level of total debt including tax office debt,” said Mr Greco.

“If a business is heavily reliant on trade credit from suppliers and once that information becomes transparent, then they might find themselves with creditors who may decline credit going forward unless those debts are brought to account.

“So it can impact quite significantly on some businesses, purely because those suppliers of credit may not be aware of the total amount of debt that the business might have incurred so for some businesses it is going to be a big wake-up call when credit is no longer provided and if they are reliant on that trade credit, it is going to have a significant impact on their operations.”

Mr Greco further believes the ATO might be struggling with small business tax debts and are looking to act on it.

“In essence, we think the ATO does have a problem with small business and collection of tax debt which is probably another way they can manage their exposure to small business, and lenders and financiers are getting more transparency of that information,” said Mr Greco.

“The fact that it is being provided to third parties is something that the government wants to do to rein in, with other measures, the amount of small business tax debt.”