Tax debt is one of those topics that can be hard to talk about. Especially when it’s unplanned for, a payable amount for a business tax return can be detrimental to cashflow and now your business tax debt can also affect your ability to get finance. The Australian Taxation Office (ATO) can now report certain tax debts to Credit Reporting Bureaus (CRBs). This means that business tax debts can not only affect your current situation but can also affect your credit score and ability to get finance for years to come.
This article will look at when the ATO can report on your tax debt, how it will affect you and the actions you can take to improving your situation so you can make it count.
What Has Changed
In January 2018, the Australian Government announced that it will allow the ATO to disclose businesses tax debt information to registered CRBs, such as Equifax and Veda. However, there were parameters placed around this reporting and the ATO is only able to report tax debt providing where the following criteria is met. The business must:
- Have an Australian Business Number (ABN) and not be an excluded entity;
- Have a tax debt, of which at least $10,000.00 is overdue by more than 90 days; and
- Not be effectively engaging with the ATO to manage its tax debt.
If a business meets the above criteria, then the process is that the ATO will notify the business, the business will then have 21 days to respond before their tax debt information is reported to CRBs.
It’s important to keep in mind that that this reporting is not for individual non-business amounts owed to the ATO. Unless you fail to pay your tax altogether and the ATO decides to start insolvency proceedings, a tax debt on your personal income tax account won’t affect your credit rating. However, interest and penalties for late payments could be applied to overdue amounts.
How Will This Affect Me?
Your credit score is a “number based on an analysis of your credit file, at a particular point in time, that helps a lender determine your credit worthiness.” This number is used by credit providers, such as banks, to determine whether to lend to you, how much to lend and the interest rate that is offered.
Therefore, having a low credit score can not only affect your ability to get finance and to refinance current loans, but also have other effects. A low credit score can mean higher interest rates on credit cards and loans, difficulty getting approval or higher deposits being needed to secure a loan.
Your credit score can be updated as frequently as each month and can be manually updated to list overdue debts, according to Equifax. Furthermore, the amount of time that information, such as a business tax debt, stays visible on your file is up to seven years depending on the type of listing.
What Can I Do?
If your business has tax debt, then there are a number of options to help you pay down your debt. These include refinancing your tax debt with a specialist lender, obtaining an unsecured business loan, sourcing an Invoice Finance Facility or engaging in a business equipment leaseback.