ATO to Start Reporting Tax Debts to Credit Agencies

There is nothing palatable about tax debt at all. Since the parliamentary inquiry of 2014, the Australian Tax Office (ATO) had made an effort to improve how it relates with taxpayers who are running a small business, and they have also employed external debt collectors to help them in collecting tax debts of these small businesses

Introduction

There is nothing palatable about tax debt at all. Since the parliamentary inquiry of 2014, the Australian Tax Office (ATO) had made an effort to improve how it relates with taxpayers who are running a small business, and they have also employed external debt collectors to help them in collecting tax debts of these small businesses. The parliamentary inquiry mentioned above made it known that some taxpayers ended up with mental breakdowns due to the bankruptcy and intimidation they experienced, no thanks to the activities of some tax collectors; some of these taxpayers also contemplated suicide, according to the report of the inquiry.

General Elucidation

Businesses are encouraged to employ ATO for their debt management from the 1st of July 2017; if not, ATO would be given authority to make public to the credit reporting agencies the tax debt information of these businesses. At the initial stage, only businesses that have over $10,000 as tax debt for over 90 days and business possessing Australian Business Number (ABN) will be affected.  Those unaffected by the rule will be taxpayers that employ ATO for tax debt management and those businesses that have reached a payment agreement with ATO.

General interest charges and penalty impositions are the immediate consequences for not paying tax debts. This new rule will be completely different from the previous rules. Due to the previous rule, several taxpayers do not accord much importance to their tax debt compared to other forms of debts. However, the new approach is expected to change the way these taxpayers view their tax debts.  Also, the new regulations makes it possible for credit files of the tax payers accessible for five years; the information in the credit file can also have an impact on the credit application for supplies and finances in the future, irrespective of the fact that the debt is paid subsequently.

The total level of debts collectible by ATO in its latest annual report was $19.2 billion as at June 30, 2016. As a result, the change mentioned above should not be seen as a surprise. The majority of this debt came from small businesses; they take up to 65.2% of the total.  Out of the total number of small businesses indebted to the ATO, only 72.3 %$ of them make payment of their debts on time.  The ATO is under huge pressure to quickly recover the high amount of debt being owed by these small businesses, and the new modalities put in place will ensure the debts are collected at a faster rate than ever before.

The order given by the federal government to ATO to make a report about tax debts to credit reporting agencies seems to be the only way out of the backlog of debts the organization has hanging around its neck. Tax debtors that prefer such information not to be made known to credit reporting agencies will be prompted to buckle their belts and pay up their outstanding debts, which will have the desired effect on government processes and regulations.

It is expected that henceforth, tax debtors will never delay in engaging with the ATO for the management of their debts, which will equally have desired positive effect on the tax agency and the government.  Many are of the opinion that the new policy will give more power to the ATO, but such empowerment is in the right direction if the backlog of tax debt is to be alleviated.

Aside from prompting tax debtors to pay up their accumulated tax, the new regulation by the federal government will improve transparency as regards taxation debts.  Discussion on this policy had been in place since 2014, but it got implemented about a month ago, which means tax debtors should not see it as a sudden or unexpected rule. Maybe ATO would not have made a move if not for the increasingly growing tax debt, especially among small business owners.

Final Verdict

The situation prompting this action by the ATO put the organization in a dilemma: they could not fathom a way to collect outstanding tax debt without hurting the cash flow of the small businesses. The proposition regarding debt management by ATO will put paid to the problem and ensure everyone gets by unscathed.  Also from now on, companies will not try to push the ATO tax to the back of the queue.