ato business tf march 2020
BUSINESS

ATO’s new weapon to battle tax debts

Using the ATO ‘as a bank’ by not paying tax commitments on time comes with new risks for SMEs.

Business funder Scottish Pacific senior executive Wayne Smith warns that many business owners are not yet aware of laws passed late 2019 allowing the Australian Taxation Office to disclose SMEs’ tax debt to credit reporting bureaus.

The new rules allow the ATO to report an SME to credit rating agencies if:

  • business owes more than $100,000 in tax
  • has an ABN
  • is more than 90 days in arrears
  • and doesn’t have a payment arrangement in place or being negotiated.

Mr Smith said the new law provides even more incentive for businesses not to run up debts with the ATO.

“Traditionally, many SMEs have used the ATO almost like a ‘line of credit by not paying their commitments on time,” Mr Smith said.

“It’s not the best option but if a business is tight for cash they often make a decision to pay other creditors and delay paying the ATO, thinking they will eventually put a payment arrangement in place.

“This action will now likely have an adverse impact on credit ratings and credit insurance limits, making it harder to maintain or extend credit terms with suppliers.”

Mr Smith said during the GFC years the ATO showed leniency in allowing businesses to run up tax obligations, as they didn’t want to be seen as putting SMEs out of business in such a tough economic environment. This leniency is now being systematically reined in.

“Years ago, the ATO had one blunt instrument – if you don’t meet obligations and there was no payment arrangement in place, the only option was to wind up the business,” he said.

“Then the DPN (Directors’ Penalty Notice) was introduced, effectively making directors personally liable for unauthorised company tax debts. Now, with this new initiative, the message is clear: the ATO is no longer prepared to be viewed as a line of credit.”

This article was first published in The Fence magazine.

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