A new law allows the ATO to report tax debt information to credit reporting bureaus in certain circumstances. What could this mean for clients with outstanding debts?
Taxpayers whose information may to be disclosed to CRBs must be within the class of entity declared in a legislative instrument made by the Treasurer. Having a legislative instrument as the implementation vehicle (rather than legislation) gives the government flexibility to change or update the criteria as and when it sees fit. However, the instrument is disallowable by Parliament and is therefore subject to proper scrutiny. Though this legislative instrument has not yet been made, according to the explanatory memorandum to the legislation, it is initially expected to apply to entities that meet the following two criteria.
1. Have an ABN and are not an excluded entity
Only entities that are currently registered with the Australian Business Register with an ABN will satisfy this criterion. The requirement that an entity merely have an ABN means that individuals, such as sole traders, contractors etc. could also have their debts reported. Excluded entities are deductible gift recipients, registered charities, government entities and complying superannuation funds.
2. Have a tax debt of at least $100,000 that is more than 90 days overdue
When this measure was originally announced, the debt threshold was set at a modest $10,000 and therefore would have ensnared many more taxpayers. However, following public consultation, the threshold has been increased to $100,000. This includes income tax debts, activity statement debts (for example, PAYGW, GST), superannuation debts, FBT debts and penalties and interest charges. Where a taxpayer has multiple debts across a range of accounts, these will be added together for the purposes of the $100,000 threshold. To be clear, the $100,000 threshold is on a per taxpayer/entity basis.
Safeguards & Notice
Even where the above criteria are met, before a debt can be disclosed, the ATO must write to the taxpayer about its intentions to disclose the debt and it must provide this notification at least 21-days before the tax debt information is due to be disclosed. The notice must be served on the taxpayer and must:
- set out the type of information to be disclosed, including the balance of the overdue tax debts payable by the taxpayer at the time the notice is given, and
- explain how a taxpayer may make a complaint in relation to the proposed disclosure of their information, and also how a taxpayer may effectively engage with the ATO to ensure disclosure does not take place, such as by entering into an ATO payment arrangement within the 21-day period.
Additionally, before the ATO makes a disclosure, it must first consult with the IGoT. This is designed as a safeguard to ensure that information is not disclosed unreasonably. This goes some way to addressing the concerns expressed by accounting industry bodies during the consultation phase of the legislation that there were inadequate checks and balances around disclosures, particularly given the detriment that can result from a disclosure.
After a disclosure is made and when corrective action is taken to the ATO’s satisfaction (such as by entering into an ATO payment arrangement) the ATO will then “fix” the report it has made to the CRB, and this will result in it being expunged from CRB records. This is in contrast to reports that other creditors make about business and individuals to CRBs which, even when the amount owed is repaid, remain on CRB records for up to five years.
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