ATO adds indebted sole traders to credit referrals

General manager of technical policy at the IPA, Tony Greco, said the move could provide a more even playing field for businesses.

“There are pluses and minuses, the pluses are it makes it more transparent that the market and all credit providers, including trade credit, get to see what level of debt the business has and it provides an extra impetus to that client to engage with the tax office,” said Mr Greco.

“If you’ve got one business compliant and another not compliant then that’s an unfair advantage, so it promotes fairness in the tax system.”

The change applies only to sole traders with ATO debts that meet certain criteria.

“The rules are currently that it has to be over $100,000 and has to be related to a business debt and it also has to be when the business is basically not responding to current attempts to put it on the payment plan or to pay it,” said Mr Greco.

The ATO said that a business or sole trader effectively engaging with it would not be subject to CRB referral, even if the debt exceeded $100,000.

The ATO said effective engagement involved having:

• A payment plan and complying with the terms of the arrangement
• An application for release from the tax debt
• An active objection against a tax decision to which the debt related
• An active review with the AAT or an active appeal to the court
• An active review with the AAT of a reviewable decision that might affect the amount of a non-complying superannuation fund’s tax debt with the relevant regulator
• An active complaint with the IGTO in relation to the tax debt.

Mr Greco said the ATO used the ability to disclose tax debt information to CRBs as a tool to influence businesses to take their debt seriously. 

“A lot of businesses treat the ATO as the lender of last resort so just don’t pay it,” he said. “When money becomes tight businesses just stop paying one of their creditors, and the easiest one is the ATO.

“A credit rating is very important if you are highly leveraged, therefore this ability to provide this information so all can see is the thing that sometimes gets people to take note of the debt because it starts to impact their ability to finance their operations.”

Mr Greco said the IPA wanted to see the ATO customise its approach for each business.

“Tax debts are a big problem and it has blown out for a good reason, the tax office was giving businesses a bit more leeway during COVID which was understandable,” he said.

“We’ve always asked for a tailored approach so if a business has been caught up in negative COVID scenarios then they [the ATO] should go soft, but if other businesses have thrived during COVID the tax office should go hard.”

Before disclosing a tax debt to CRBs, the ATO said it would send a written notice to the business that included steps that could be taken to avoid the information from being reported.

Josh Needs
19 July 2022
accountantsdaily.com.au