How have the rules changed recently?
In 2017, the Federal Government announced that the ATO could report outstanding business tax debts to the credit reporting agencies. This meant that businesses with outstanding tax debt could be negatively affected when seeking business finance or trade credit. Originally, the threshold for reporting was over $10,000 in tax debt that was more than 90 days overdue.
Proposed changes announced in July 2019
Under proposed rules published by Treasury, business tax debt of $100,000 for more than 90 days would be reported to credit agencies.
Businesses that are communicating with the ATO, with the aim of resolving or managing their tax debt, would be exempt from disclosure, even if they were above the $100,000 threshold. Additionally, businesses disputing their tax debt would also be exempt.
Businesses managing their tax debt
Many Australian businesses have been effectively managing their tax debts. Having a debt arrangement with the ATO doesn’t mean a business isn’t successful or doesn’t have growth potential.
Despite this, the ATO’s new reporting powers will motivate more business owners to look for other forms of finance instead of using the ‘Bank of ATO’. Moula has been helping small businesses refinance their debt since 2014. Around 16 per cent of business loan applications with Moula are mainly to refinance existing debt and nearly 40 per cent of companies with a Moula business loan also have some form of tax payment plan with the ATO.
Funding alternatives to the ‘Bank of ATO’
According to Moula CEO Aris Allegos, businesses will likely seek finance alternatives if the proposed reforms are put into effect, to avoid damaging their credit scores.
“The Federal Government’s crackdown on businesses failing to pay significant tax debts by disclosing them to credit reporting agencies is likely to prompt risk-averse business owners to move quickly in seeking alternative funding to avoid being referred to credit reporting agencies,” he noted.