Outstanding tax debts could threaten your business credit rating from July when the Australian Tax Office is allowed to disclose information to credit agencies.
The new rule was announced in late 2016 as part of the Mid Year Financial Outlook released by the Federal Government and comes into effect in the new financial year.
It is the centerpiece of an effort to claim the $19 billion of overdue tax owed to the ATO. Small businesses earning $2 million or less each year owe around two thirds of the total, which is around $12.7 billion.
A credit rating note, which lasts five years, can affect the ability of a business to obtain finance from the bank, secure suppliers, and access services such as equipment hire.
For sole traders, personal credit ratings will be at risk.
As part of the new regime, any tax debt over $10,000 that is at least 90 days overdue will be reported to credit agencies.
However, if the business makes contact with the ATO by 30 June and arranges a payment plan, it will not be reported to credit agencies.
Those businesses already engaged with the ATO in a plan to pay off debt will also be spared – the initiative is targeting those businesses that have not cooperated with the ATO.
It is essential that you actively engage with the ATO before 30 June to manage your tax debt.
And make sure you address the underlying issues behind your tax debt, which will likely be related to your cash flow.
There are several steps to take to get your cash flow under control:
- – Keep GST collected in a separate bank account;
- – Have a procedure in place to chase up and keep on top of money owed to you;
- – Review your pricing to ensure you are making an acceptable profit.
MWM Advisory can be your liaison with the ATO and can help your business get out of a cash flow hole.
It is imperative that you take action now if you have accumulated a debt of $10,000 or more to the ATO, in order to avoid a black mark on your credit rating that could impact the viability of your business.