Recently new rules came into effect which will be severe for those who fall foul of the ATO’s requirements.

The ATO has new powers to notify the credit reporting agencies in certain circumstances when you fail to pay your ATO debts. A default notice on your credit rating stays on the credit report for five years. That means there will be five years of challenging times getting finance approvals and potentially not being able to borrow at all whilst the black mark from the ATO is on your credit report.

The important question to ask is does it apply to you? It applies in the following situations:

  1. You have an unpaid debt to the ATO of more than $ 10,000
  2. The debt is outstanding for more than 90 days
  3. You have not made any contact with the ATO to make arrangements for payment
  4. This applies for all debts from 1 July 2017 and is ongoing
In the event that you do have a debt of more than $ 10,000 which is more than 90 days overdue, make immediate contact with the ATO and request a payment arrangement.

The ATO has a few criteria for payment arrangements and if possible prefer that it be paid before the end of the financial year, or failing that within 12 months. Note that the ATO will apply interest on the outstanding amount.

In the future, remember that if you have a debt of more than $ 10,000 which you are unable to pay within 90 days, make contact with the ATO before the 90 days is up. The ATO have the power to report the default at 90 days, so making contact with them before then is vital to ensure that the default is not listed on your credit report.

Once a default is listed on the credit reporting agency information, it is virtually impossible to have it removed and banks and financial institutions are loath to lend money to any business or person with a default on their report.

In recent years, the banks have been requesting Tax Agent Portal reports as part of their finance application procedures. These Portal reports show the transactions your business has with the ATO and shows what date the amounts were due and when they were paid.

The banks will insist that the report shows a nil balance before approving a loan. This meant that as long as you could find a way to pay the ATO debt back, you would be able to get a loan.

However, with the new default reporting by the ATO, the default will stay on your credit report for five years leaving you potentially in a very bad position if you’re applying for finance.

All payment arrangements with the ATO are dependent on a number of requirements, namely:

  1. You must make each payment when it is due
  2. The ATO may insist on a direct debit for the payments
  3. You can nominate whether you pay fortnightly or monthly
  4. All ongoing tax debts must be paid when they are due
  5. Interest will be added to the repayment calculation
  6. In certain situations, you will be asked to provide cash flow forecasts for your business in addition to details of accounts receivable and accounts payable
  7. The ATO has their own minimum amounts they will require and if your offer of payment amounts is too low they will not accept your payment arrangement

In the event of special circumstances, particularly those affected by natural disasters, the ATO has other requirements which provide more flexibility and it is important to notify them when you are talking to them that you have been affected by special circumstances.

Remember that as a business owner it is your responsibility to pay your taxes and know what your circumstances are. It’s your credit rating that could be in jeopardy.

As a business owner, the last thing you need to have is a black mark on your credit report that means you can’t borrow money for five years which could severely limit your business survival and growth into the future.

Ideally, you need to be putting money aside each week into a separate bank account so that when the tax bills fall due you have the money put aside. One of the first things I do when talking to clients is set this up for them. If you need help with this, make contact with me to set up a time to chat.