The ATO: A Business Reality Check

In the coming month, over 9,000 businesses are poised to have their outstanding debts revealed to credit reporting agencies. Additionally, within this financial year, it is anticipated that 50,000 businesses will receive ‘notices of intent to disclose business tax debts.’ These actions by the Australian Taxation Office (ATO) carry far-reaching consequences, notably impacting a business owner’s ability to secure financing.

To comprehend the full scope of this matter, let’s delve into two distinct aspects of this development. Drawing upon my 27 years of experience in the finance sector, I’ll shed light on the underlying dynamics.

The COVID Conundrum

During the COVID-19 pandemic, spanning from 2020 to 2022, the Australian government extended a lifeline to small and medium-sized enterprises (SMEs) by temporarily suspending the requirement for them to settle their tax debts. This compassionate measure was taken as many SMEs encountered severe financial challenges. The ATO, mindful of not exacerbating their woes, refrained from pursuing insolvency proceedings during this period, exhibiting a ‘helping hand’ approach. Although this reprieve was beneficial for some businesses, for others, it merely delayed an inevitable reckoning.

As the economy gradually rebounded and resumed normal operations, the ATO and the Australian Securities and Investments Commission (ASIC) resumed their conventional regulatory roles. However, a complex situation unfolded. Some businesses still grappled with financial distress, while others, which might have organically ceased operations during the pandemic, clung to existence due to government support. Notably, post-pandemic, business closures surged significantly compared to previous years, largely because the businesses that were sustained during the pandemic period faced a bleak future. This leads us to the subsequent issue: business owners accumulating substantial ATO debts during the COVID-19 crisis and now facing the challenge of retiring these debts or presuming the ATO will indefinitely carry the burden.

Heeding the Alarm Bells

As highlighted earlier, the ATO is now taking stringent measures to collect overdue tax debts. In the past, leaving ATO debts unpaid while addressing more immediate financial concerns was an accepted practice, as the primary consequence was interest accrual.

The landscape has shifted significantly. The ATO is confronting a mounting debt crisis, currently shouldering “millions of dollars of debt” that is only growing. So, what has changed? What actions will the ATO take against business owners who fail to clear their ATO debts?

The ATO now possesses the authority to notify credit reporting agencies. These agencies, also known as credit bureaus, are responsible for gathering and managing financial data pertaining to individuals and businesses. They compile credit reports containing details of a person’s borrowing history, outstanding debt balances, and payment records. Some agencies even calculate credit scores, which reflect an individual’s creditworthiness. These reports and scores serve as crucial references for lenders, employers, landlords, and other entities when assessing credit risks, employment decisions, or lease agreements.

In essence, credit reporting agencies play a vital role in the financial system, promoting responsible lending and facilitating sound financial decision-making. When the ATO shares information about your tax debt with these agencies, it becomes accessible to all organizations relying on their services. Banks, telecommunications companies, utility providers, prospective employers, landlords, and a plethora of others can access this information. What they discern is that you are unable to meet your financial obligations, rendering you a perceived “risk” in any contractual engagement. This seemingly innocuous action by the ATO can inflict severe repercussions, alienating businesses and individuals who may hesitate to engage with you due to this perceived risk.

My advice: If you have a tax debt, initiate negotiations with the ATO for structured debt repayment plans or to pay off your debt in its entirety, well in advance of the ATO taking the drastic step of disclosing your information to a credit reporting agency. During these negotiations, explicitly request that your details not be disclosed to any credit reporting agency and ensure this is documented in writing. If you find yourself unable to meet a substantial tax debt, particularly, contact us to explore financing options. Our team comprises specialists in SME finance, and we collaborate with lenders who can extend financial support to resolve tax debts. Importantly, it is more advantageous to seek financing proactively, pre-empting the ATO from branding your credit file with a detrimental “black mark.”