Businesses urged to be proactive about their tax debt in the face of ATO action

Non-bank lender ScotPac is advising business owners and their brokers and accountants to be proactive in disclosing their tax debt before the ATO starts acting on its powers to disclose SME tax debt to credit reporting agencies.

These powers came into force as a result of a law passed in 2019 that allows the ATO to report a business to credit rating agencies if the business owes more than $100,000 in tax, has an ABN, is more than 90 days in arrears and doesn’t have a payment plan in place or being negotiated.

Until now, these powers were put on hold to allow SMEs to cope with the challenging business conditions created by the pandemic.

ScotPac senior executive Craig Michie said it was vital for SMEs and their accountant and broker advisers to get on the front foot and come to arrangements with creditors.

“When the pandemic hit, the Australian Taxation Office understandably put its powers on hold due to COVID-19’s massive impact on the business sector,” Michie said. “Now, many of our accounting partners have indicated the ATO is again sending SMEs notification of intent to start reporting their outstanding tax debts to credit bureaus.”

Michie urged business owners to put in place sustainable business funding and talk to creditors regularly to keep them in the loop about how the business is faring.

“The worst thing a business can do is stop communicating with creditors as it makes creditors more anxious,” Michie explained. “Even if you can’t pay now but have a pipeline of work that will provide cashflow, share those details with creditors and link your payment to that future cashflow. SMEs should do this all the time, but it is especially important in the current business environment.”

ScotPac is also urging businesses to have a sustainable funding structure in place, especially with the current strong incentive not to run up ATO debts.

“In the past, business owners have sometimes used the ATO like a ‘line of credit’ by not paying their ATO commitments on time,” Michie said. “Now, if business owners take this road, it is much more likely to have an adverse impact on their credit ratings and credit insurance limits, and this would make it more difficult to maintain or extend credit terms with suppliers. The ATO is no longer prepared to be viewed as a line of credit.”

Michie advised that debtor finance (invoice finance) facilities are a good option for SMEs in a tight financial situation and cannot address their tax debt.

“We always encourage clients to be proactive with the ATO and our brokers know we understand clients very well facing that situation and having a repayment scheme in place won’t necessarily inhibit their ability to get funding,” Michie said. “No matter what part of the economic cycle we are in, if you have a solid debtor book you will be able to access invoice finance meaning there is no need for the business owner to be put through hoops to qualify for a loan that has to be repaid.”

Business owners are also encouraged to access the FitsME Guide (and for their accountants and brokers to access the longer Business Funding Guide) created by the Small Business Ombudsman (ASBFEO) and ScotPac. This guide provides comprehensive information on a wide range of business funding options to suit many small business scenarios, as well as handy tips to help SMEs become “finance fit”.