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Should the ATO be able to register credit defaults?

Sep 18, 2018 | Written by Cliff Sanderson

The winds of change are starting to ruffle for the ATO again.  You’ll recall that in June 2012, the Director Penalty Notice regime was changed to allow for director automatic personal liability for some tax debts.  Those laws were trying to change directors’ attitudes to tax debts.  Traditionally tax debts were the first not to be paid when a company encountered solvency problems.  Well now the ATO is making moves to be allowed to report as credit defaults the non-payment of tax debts.

At present the ATO does not have the power to register defaults at Credit Agencies when a business or individual doesn’t pay their tax debts on time.  But there have been noises emanating from the ATO on the topic.  In February 2014, the Second Commissioner made comment to the Standing Committee on Tax and Revenue which touched on the issue.

The ATO currently has about $17 billion in unrecovered tax debts and a big chuck of that is owed by small business – about $10 billion.   The Second Commissioner noted that after the GFC, the ATO was very accommodating on debt problems for tax payers (and yes that is correct) and that he would have expected that defaults would have since dropped, but they haven’t.  Hence he said “One of the things we think might be at play here is that, because the fact of a debt to the tax office cannot be disclosed to the markets because of secrecy provisions, there are no credit reference consequences from being in debt to the tax office… being in debt to us does not affect your credit rating.  That is a matter for government to consider at some point.”

He acknowledge that advising of credit defaults by the ATO was not a simple issue.

What do I say?  Well, if I am a business and I am about to provide a service or goods to a company on credit then I sure as eggs would like to know if they were in default to the ATO at the time!  I can tell you that when I am retained to investigate a company’s solvency, the first thing I look at is the status of payments to the ATO.  If tax the tax debt is past due that is the first tick on my insolvency checklist.  I am not saying that all tax debts should be disclosed.  But a default by a company for a material amount and for a material time is something the outside world should be made aware of.

If you disagree with me and the Second Commissioner don’t panic.  There is no specific proposal or legislation being mooted.  So it’s a long way down the track before it can become a reality

Cliff Sanderson

Cliff Sanderson