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SMEs and their brokers have been urged to be vigilant as the ATO begins acting on powers to disclose SME tax debt to credit reporting agencies.
In 2019, the federal government passed the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019, which contains a measure to allow the Australian Tax Office (ATO) to disclose small-to-medium enterprise (SME) tax debt to credit reporting agencies.
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The bill allows the ATO to report a business to credit reporting agencies if the business owes more than $100,000 in tax, has an ABN, is more than 90 days in arrears, and does not have a payment plan in place or being negotiated.
However, these powers were paused to allow SMEs to cope with the economic impacts of the coronavirus pandemic, until now.
As such, non-bank lender ScotPac has warned business owners and their brokers and accountants to be proactive in forming arrangements with creditors as the ATO commences acting on its powers to disclose tax debts.
The non-bank lender’s senior executive Craig Michie said that many of its accounting partners have indicated that the ATO is once again sending SMEs notification of intent to begin reporting their outstanding tax debts to credit bureaus.
Mr Michie urged business owners to put in place sustainable business funding and update creditors regularly on how the business is performing.
He said: “The worst thing a business can do is stop communicating with creditors as it makes creditors more anxious. Even if you can’t pay now but have a pipeline of work that will provide cashflow, share those details with creditors and link your payment to that future cashflow.
“SMEs should do this all the time, but it is especially important in the current business environment.”
Mr Michie also noted that in the past, SME owners have sometimes used the ATO like a line of credit by not paying their ATO commitments on time.
However, he warned that this could have an adverse impact on their credit ratings and credit insurance limits if they continue this practice, which could hinder their ability to maintain or extend credit terms with suppliers.
“The ATO is no longer prepared to be viewed as a line of credit,” he said.
Instead, Mr Michie suggested that debtor finance (invoice finance) facilities could serve as alternatives for SMEs in this position.
“We always encourage clients to be proactive with the ATO… and having a repayment scheme in place won’t necessarily inhibit their ability to get funding,” he said.
“No matter what part of the economic cycle we are in, if you have a solid debtor book you will be able to access invoice finance meaning there is no need for the business owner to be put through hoops to qualify for a loan that has to be repaid.
“We’d urge business owners to invest time with their funder… or with their broker or accountant, to carefully consider what is the best funding for their business situation and get that funding in place early so they don’t end up on the wrong side of this credit reporting initiative.”
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