Posted by Revive Financial on Feb 22, 2022 2:52:00 PM

Are you, like many small businesses, struggling with tax debt right now? If so, what are you doing about it?

While it can be tempting to push it to the back of your mind rather than dealing with it, leaving your ATO tax debt unpaid and unreported can have some pretty unwanted consequences for you and your business.

As well as being hit with general interest charges or having your tax refunds or credits automatically used for payment, we’re starting to see the ATO report outstanding debts to credit reporting bureaus (CRBs) using new powers

However, if you have an ATO payment plan, you may be protected.

Tax Debt? You're not alone

According to the Inspector General’s analysis of ATO data, tax debts have been on an upward trajectory for the past few years – including before COVID hit.

The report also found that small businesses accounted for the majority of the overall debt book at 62.9 per cent or $21.4 billion – a figure that isn’t likely to improve as businesses continue to grapple with staff shortages, supply chain disruptions and a drop in revenue growth.

We’ve certainly seen that cash flow is in short supply as we roll through the first few months of 2022. But unfortunately, tax debt must be dealt with, even when cash flow is short. If it’s not, your troubles will only grow.

The power to disclose your debts

If you don’t deal with your tax debt, the ATO’s latest power – to be able to disclose your debt to CRBs – may be directed at you.

This power to report unpaid tax debt to credit reporting bureaus has been on the cards for years, but only came in with the passing of the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No.1) Bill 2019.

Since then, these powers weren’t activated, likely in part due to pandemic lenience. However, since mid-2021, the ATO have finally begun sending out orange-coloured warning letters to business owners advising them of their intention to disclose tax debt information when repayment isn’t forthcoming.

The consequences of tax debt disclosure

If your business has significant outstanding tax debt and you receive one of these letters warning you of debt disclosure, you have 28 days from receiving the letter to engage with the ATO to manage your debts.

If you fail to engage with the ATO and they report you to one of their listed credit bureau agencies, the default will be recorded on your commercial credit file, having immediate and lasting consequences.

A credit default is a black mark that lasts on your file for five years and makes it harder for you to secure financial support from your bank or other lenders. It can also be viewed by suppliers, competitors and customers.

Ultimately, it’s bad news for your business, stress levels and mental health.

Could a disclosure letter land in your mailbox?

You could be a potential recipient of an orange debt disclosure letter from the ATO if you haven’t responded to previous SMSs, messages in MyGov, letters or phone calls regarding your tax debt and your business meets the following criteria:

  • Has an Australian Business Number (ABN) and isn’t defined as an ‘excluded entity’. Excluded entities include:
    • a deductible gift recipient
    • a registered charity
    • a government entity
    • a complying superannuation entity
  • Has tax debts of $100,000 minimum that are overdue by more than 90 days. This debt includes:
    • income tax debt
    • activity statement debt
    • superannuation debt
    • fringe benefits debt
    • penalties and interest charges
  • Is not considered to be effectively engaging with the ATO to manage its debt
  • Is not having a complaint considered by the Inspector-General of Taxation about your tax affairs and reporting


Disclose before they do

The best way to avoid a letter saying that the ATO is intending to disclose your debt to a CRB is to take action. This means paying your ATO tax debt if you can, or telling the ATO if you can’t, while making sure you meet reporting deadlines.

Despite concerns to the contrary, the ATO isn’t out to get you and they don’t want to put pressure on struggling businesses. If you disclose the truth – that you’re having a tough time paying your tax debt – they’re committed to listening to your situation and getting you back on track.

For this, they have a range of tools and services available. One of these is an ATO payment plan.

Avoid disclosure with an ATO payment plan

An ATO tax payment plan - which you can easily apply for online – allows you to pay back your tax debt in manageable instalments.

Importantly, you can only apply for one online if your tax debts are under $100,000. For payment plans over $100,000, you’ll need to contact the ATO directly.

Before you apply, it’s important that you consider how much you can pay so that you meet each scheduled instalment, as well as your future obligations. In some cases the ATO may request more information from you about your finances and situation. This can help in the creation of a plan that works for both of you.

You can apply for an ATO payment plan online via the ATOs Online Services for Business.

If your small business owes activity statement amounts, and you meet the specified criteria, you may be able to pay these off interest-free over 12 months.

Effective engagement or exceptional circumstances

If you have an ATO payment arrangement in place and are complying with the repayment terms, the ATO will exclude these debts from your $100,000 debt disclosure threshold. This is because they consider a payment plan as you effectively engage with them to manage your debt.

Other actions that are considered effective engagement include:

  • Applying for a release from your tax debt
  • An active objection against a tax decision
  • An active review with the Administrative Appeals Tribunal (AAT) or an active appeal to the Court
  • An active complaint with the Inspector-General of Taxation

As well as opting for an ATO payment plan, you may also be able to temporarily stop the ATO from disclosing your tax debt to credit reporting bureaus if you’re experiencing exceptional circumstances. These include but aren’t limited to:

  • A family tragedy
  • Serious illness
  • Impacts of natural disaster

Exceptional circumstances don’t include cash flow issues or financial hardship.

Payment plan: protection for debt disclosure

Having a payment plan in place to manage your ATO tax debt can help you avoid being served a letter of disclosure – and getting a black mark on your business. It can also ease the mental load and make your debts manageable.

A tax debt payment arrangement can also protect you from other serious actions being taken by the ATO including garnishee notices, director penalty notices, direction to pay super guarantee charge, a claim or summons, a bankruptcy notice, creditors demand, statutory demand or wind-up action.

So, if your tax debt is mounting and has become out of hand, it might be time to look at your options.

Is your business currently experiencing significant tax debt or distress? See how we can help with our Instant Online Assessment. If your business uses XERO for its accounting, you can receive an instant score and suggested actions based on your personal situation, using our free Business Viability Tool. Alternatively, speak to one of the team now on 1800 861 247 for professional, non-judgemental support and advice.

Topics: Tax Debt, ATO payment plans, credit score, Business Advice, Debt Management

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