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Tax Debts to Appear on Credit Ratings

The government has recently announced intentions to increase the disclosure capabilities of the Australian Taxation Office enabling an increase in information from the ATO to the credit reporting bureaus.
This information will be in regards to the tax debts of businesses that are not effectively engaged in managing their outstanding debts.

Since July this year, tax debts greater than $10,000 and more than 90 days overdue may now appear on a business’ credit rating.

The ATO has advised that it will notify taxpayers if it intends to disclose the debt to credit reporting bureaus. In these instances, businesses will have the opportunity to ensure that it does not appear against their credit record.

Risk mitigation steps

For businesses with an outstanding tax debt:
To avoid current or future tax debts being reported to a credit rating, businesses with outstanding tax debt can pay the debt before the due date or enter into a payment arrangement.

Under a payment arrangement, the client would need to agree to:

          • lodge all outstanding income tax returns and activity statements before
commencing  the payment arrangement
• make consistent payments towards the debt over a specified and agreed timeframe, including
general interest charge, and
• continue to lodge and pay all future debts on time and in full.

Failure to complete all these points may cause the debt to be referred to the credit reporting bureaus, which could reduce borrowing capacity in the future.

For businesses with large debtors and/or reliance on a one customer

This new reporting requirement can enhance a business’ ability to have greater control over who they extend credit terms to. Cloud-based accounting and third party web services have credit check facilities so users can see if a particular customer should be extended credit.

These types of services are also invaluable for businesses who have a heavy reliance on one customer for a large contract. It may be worthwhile for clients to rethink this strategy when their major customer has a bad credit rating or large secured creditors.

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