SMEs need to shift reliance on lending via “Bank of ATO”

Last month, the Federal Government released its plan to crack down on small-business tax debts, giving the Australian Taxation Office power to tell credit reporting bureaus about outstanding debts.

Under the new legislation, taxation officers will be able to disclose to credit reporting bureaus when a business has a debt of $100,000 for 90 days or more. While this caused concern for many, some believe that it levels the playing field by creating greater transparency about the financial health of businesses.

The ATO has long been seen as the fifth largest SME bank in Australia, with small businesses tax debt often used pragmatically as a form of affordable working capital. In mid-2018, the ATO had a collectable debt of $19 billion, seventy per cent of which belonged to small to medium enterprises. This equals about $13 billion in SME debt to the ATO.

Many successful Aussie businesses have managed themselves effectively over the years with ongoing tax debts. A manageable debt arrangement with the ATO is not a negative reflection on the success or growth potential of Australian businesses. Nearly 40 per cent of companies with a Moula business loan are also on some form of payment arrangement with the ATO.

However, the crackdown on companies failing to pay these tax debts is likely to prompt risk-averse business owners to move quickly in seeking alternative funding to avoid being referred to credit

reporting agencies. Sixteen per cent of business loans applications through Moula are primarily to refinance debt. 

The real issue the ATO is seeking to address is engagement, ensuring businesses do not continue to run up debts exceeding $100k and fail to make efforts to speak to the ATO about repaying the debt.

When introducing the legislation to the House of Representatives, Assistant Treasurer Michael Sukkar said the measure “will encourage businesses to engage with the ATO and repay their debt in a more timely manner” and highlighted that the policy would only apply in cases where the company had refused to engage with the tax office over the debts.

An ATO spokesperson reiterated the message to small and medium enterprises, saying, “Even if you feel you have left it too late or your debt is becoming unmanageable, give us a call. It is never too late to engage with us.”

Dealing with existing tax debt can be tough. The ATO do offer payment plans for businesses looking to settle their tax debt; however, these aren’t always suited to SMEs.

Regardless, the latest rules implemented by Treasury will be a catalyst for small to medium enterprises to consider shifting their reliance away from the “Bank of ATO” to minimise credit rating risk.

Aris Allegos, CEO, Moula

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