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Tax debt transparency laws: the ATO’s new 'big stick'

Tax debt transparency laws: the ATO’s new 'big stick'

New proposed tax debt transparency laws have the potential to incur “severe repercussions” should the ATO make a disclosure error, says one industry body.

Tax&Compliance Jotham Lian 15 January 2018
— 2 minute read

Exposure draft legislation for the transparency of business tax debts was released last week, aiming to allow the ATO to disclose business tax debts to credit reporting bureaus where the businesses have not effectively engaged with the tax office to manage their debt.

The criteria for reporting tax debt information will depend if the entity has an ABN, a tax debt of which at least $10,000 is overdue by more than 90 days, and has not effectively engaged with the ATO to manage its tax debt.

The draft legislation requires the ATO to consult with the Inspector General of Taxation before tax debt amounts are reported to credit reporting bureaus.

The Tax Institute senior tax counsel Professor Robert Deutsch says the measure might appear heavy-handed but believes it is the right initiative to help businesses deal with errant suppliers.

“Is it a big stick? – Well yes it is… if you have not engaged with the ATO in respect of a particular outstanding debt. If you have engaged, the ATO would not be able to disclose,” said Professor Deutsch.

“This raises the question as to what does 'engage' mean in this context. Presumably it means that if you have entered into negotiations with the ATO on a reasonably timely basis to pay off a debt they will not disclose.

“The risk is if the ATO were to disclose in error for whatever reason, an error which would have severe repercussions for the affected party.”

Explanatory materials provided by Treasury acknowledge the potentially serious consequences of having tax debt disclosed but believe it would help “motivate” taxpayers to comply.

“The consequences for a taxpayer of having their tax debt information disclosed to credit reporting bureaus can potentially be very serious,” Treasury said.

“Given the potential consequences of disclosure for a particular taxpayer, the amendments should encourage taxpayers to engage with the ATO preventing their debts from being reported, or motivate some taxpayers to promptly resolve their tax debt and voluntarily comply with their tax obligations.”

Professor Deutsch is unsure if the level of outstanding debt in recent times has led to such a measure but believes it would be reasonable to introduce the bill, should the ATO stick to its guidelines and enforced safety mechanisms are put in place.

“Those in business are entitled to have information available to them as to the credit worthiness of those they deal with such as suppliers, customers, etc.,” said Professor Robert.

“It seems reasonable that if there is information about the poor credit history of, for example, a supplier to a business in relation to the supplier’s track record with the ATO, that information should be available to that business owner.

“It would be helpful if a review would be conducted, 18 months after the measures begin to operate, so as to assess how effective the measures are and to whether any errors have been made and how they were dealt with.”

Treasury is inviting feedback on the draft legislation until 9 February. You can have your say here.

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Tax debt transparency laws: the ATO’s new 'big stick'
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