The Government announced draft legislation for a ‘tax debt transparency’ (disclosure) measure on 11 January 2018, for consultation purposes (see related Tax Month article).

On the same day, ATO uploaded the following article, seeking simultaneous consultation on its proposed administration of this proposed measure (with suitable disclaimers about this only being proposed administration of a proposed measure).

I have removed the ATO’s examples, to shorten the article (see the full ATO article).

[Note: there are ‘study questions’ at the end of this article – to aid comprehension]

Introduction

  1. The ATO recognises the important role businesses play in the Australian economy. When an entity avoids paying its tax debts it can have a significant impact on other businesses, employees, contractors and the wider community.
  2. In the 2016-2017 Mid-Year Economic and Fiscal Outlook, the Government announced its intention to allow the ATO to report, to credit reporting bureaus (CRBs), the tax debt information of entities that do not effectively engage with the ATO to manage those tax debts. The ATO is not currently authorised to report this information under the confidentiality of taxpayer information provisions.
  3. The purpose of allowing the ATO to report an entity’s tax debt information to CRBs is to:
    • support more informed decision making within the business community by making overdue tax debts more visible. This will allow businesses and credit providers to make a more complete assessment of the creditworthiness of an entity. Currently, the first time creditors may learn that an entity has an overdue tax debt is after another creditor or the ATO commences legal action to recover the debt.
    • reduce the unfair advantage obtained by entities that do not pay their tax on time. These entities may have a competitive advantage over entities who comply with their tax obligations.
    • encourage entities to engage with the ATO to manage their tax debts and, where an entity is unable to pay a tax debt in full by the due date, enter into a sustainable payment plan that is agreed between the ATO and the entity.
  4. The Transparency of Tax Debt measure permits, but does not require, the ATO to report the tax debt information of entities to CRBs. This is subject to safeguards, including an ATO review process.
  5. There are a number of ways an entity can effectively engage with the ATO to prevent the reporting of its tax debt information to CRBs. The aim is to encourage entities to engage in the management of its tax debts. This is expected to positively influence payment behaviour and, in turn, decrease the number of entities the ATO reports.
  6. Following community consultation, and once the new law commences, the ATO will publish a Practical Compliance Guideline explaining how this measure will be administered, who it will affect, and how to avoid having debts that will be reported.
  7. This document [will] provide guidance on:
    • the phased implementation
    • whose tax debt information may be reported
    • how an entity will be notified before its tax debt information is reported
    • how an entity can prevent its tax debt information from being reported
    • how an entity can request an ATO review before its tax debt information is reported
    • when the ATO may report an entity’s tax debt information
    • what tax debt information will be reported
    • who tax debt information will be reported to
    • how long tax debt information will remain on an entity’s credit report, and
    • what to do if tax debt information is reported incorrectly or in error.

Phased implementation of the measure

  1. Implementation will occur gradually. As part of the gradual implementation, the initial phase will focus on raising community awareness of the measure and its implications. During this time, the ATO will build awareness of the measure through communication activities such as newsletters, articles, forums and speeches.
  2. Under the ATO’s phased implementation approach, only companies that meet the criteria below will initially be reported. This will provide additional time for other entities to become aware of the new measure, recognising the impact of reporting on business activities and personal affairs.
  3. Gradually, implementation will be expanded to other entity types such as partnerships, trusts and sole traders. The measure does not apply to individuals who do not have an Australian Business Number (ABN).

Whose tax debt will be reported?

The criteria for reporting tax debt information

  1. The ATO will be permitted, but not required, to report the tax debt information of an entity to CRBs where the entity meets all the following reporting criteria:
  • Criterion one: the entity has an ABN and is not an excluded entity (the ABN and excluded entity test), and
  • Criterion two: the entity has a tax debt, of which at least $10,000 is overdue by more than 90 days (the debt threshold test), and
  • Criterion three: the entity has not effectively engaged with the ATO to manage its tax debt (the effective engagement test).
  1. The ATO will consult the Inspector-General of Taxation (IGT) before an entity’s tax debt information is first reported. This consultation is to establish if an entity has made a complaint to the IGT about the ATO’s notice of intention to report the entity’s tax debt information. The ATO will not report an entity’s tax debt information for the first time where the IGT is investigating, or is intending to investigate, a complaint from the entity about the ATO’s notice of intention to report its tax debt information.
  2. Even where an entity satisfies the above criteria for reporting, the ATO may decide not to report its tax debt information if the entity is experiencing exceptional circumstances (see exceptional circumstances below).
  3. The reporting criteria limit the scope of the ATO’s discretion to report an entity’s tax debt information. This recognises there may be serious consequences for an entity as a result of having its tax debt information reported to CRBs.
  4. Additionally, the reporting criteria operate to clearly define the entities whose tax debt information is eligible for reporting. The reporting criteria ensure only disengaged entities carrying sizable overdue tax debts will have their tax debt information reported. In this regard, the reporting criteria operate to only allow reporting when it is a proportionate response, having regard to the particular entity’s circumstances and the risk its tax debt represents to other businesses and the wider community.

Criterion one: The ABN and excluded entity test

  1. The first criterion an entity must satisfy is that it has an ABN and the entity is not an excluded entity. Only entities currently registered with the Australian Business Register with an ABN will satisfy this criterion.
  2. Companies, partnerships, trusts, sole traders and superannuation funds may be entitled or required to have an ABN.
  3. An entity who has an ABN demonstrates, as part of the registration process, that it is, or is preparing to, carry on a business or enterprise in Australia. Accordingly, other businesses and people looking to engage with that entity may want to be informed of its creditworthiness.
  4. There are four types of excluded entities. These entities are excluded on the basis that, typically, the main or predominant purpose of these entity types is not the pursuit of profit for its members or shareholders.
  5. The following entity types are excluded:
    • a deductible gift recipient
    • a not-for-profit or registered charity
    • a government entity, and
    • a complying superannuation entity.

Criterion two: The debt threshold test

  1. The second criterion is that an entity must have a tax debt, of which at least $10,000 is overdue by more than 90 days.
  2. Entities have a period of time before payment of a tax-related liability becomes due. Once the due date for payment has passed, the ATO will commence its pre-legal debt recovery processes. These processes may vary depending on an entity’s past compliance history. This pre-legal recovery activity seeks to engage the entity to address its overdue tax debts in a timely manner.
  3. In determining whether an entity meets the debt threshold test, an entity’s total tax debts will be considered including:
    • income tax debts
    • activity statement debts, for example GST, Pay as You Go Withholding (PAYGW)
    • superannuation debts
    • fringe benefits tax debts, and
    • penalties and interest charges.
  4. Where an entity has multiple tax debts across different ATO accounts, they will be added together to determine if the entity’s total overdue tax debt meets the debt threshold test.
  5. As an additional safeguard for entities not yet reported, the ATO will look at an entity’s tax debts, for the past 14 days, as a proportion of its total overdue tax debts. The ATO will delay the reporting of an entity with a large recent increase in its tax debts. This is designed to give the entity additional time to respond to the sudden increase and pay the debt or enter into a payment plan.
  6. Information on how to find out the balance of an entity’s overdue tax debts can be found at https://www.ato.gov.au/General/Paying-the-ATO/How-much-you-owe/.

Criterion three: The effective engagement test

  1. The third criterion is that an entity has not effectively engaged with the ATO to manage its tax debts. There are a number of ways an entity can effectively engage with the ATO to prevent its tax debt information from being reported.
  2. An entity will have effectively engaged if it:
    • has a payment plan in place and is meeting the terms of the payment plan
    • has lodged a Part IVC objection against a taxation decision to which its tax debt relates, or
    • has applied to the Administrative Appeals Tribunal (AAT) for review or appealed to the Court against a decision to which its tax debt relates.

Has a payment plan

  1. An entity will have effectively engaged in the management of its tax debt if it has entered into a payment plan and is meeting the terms of that plan.
  2. The ATO focuses on making it as easy as possible for entities to manage and pay their tax debt, and this includes tailored payment plans. This ensures that overdue tax debts can be managed sustainably. There are a number of ways to request a payment plan. Information about payment plans can be found at https://www.ato.gov.au/General/Paying-the-ATO/Help-with-paying/.
  3. The individual circumstances of the entity will be considered, including its capacity to pay the proposed amounts and any steps taken, or proposed to be taken, to mitigate the risk. The ATO may also consider the entity’s past history, including any defaulted arrangements and late lodgements. More information may be required before accepting a payment plan. In these circumstances, a reasonable period of time will be allowed to provide that information.
  4. When an entity enters into a payment plan for its tax debt, the entity agrees to the terms of the payment plan which include, for example, making the scheduled payments on time and lodging and paying all future liabilities on time. If an entity is in a payment plan and is meeting the terms of the payment plan, the ATO will not report its tax debt information to CRBs.
  5. If an entity fails to meet the terms of a payment plan (such as not making scheduled payments or failing to lodge and pay all future liabilities on time), the entity may become eligible for reporting as it is no longer effectively engaged. The entity may be able to remedy the default or negotiate a new payment plan depending on its circumstances, including its compliance history. While the entity is remedying the default or negotiating a new payment plan, the ATO will not report the entity’s tax debt information. If the tax debt remains and a new payment plan has not been entered into, the ATO may report the entity’s tax debt information.

Lodged a Part IVC objection or appeal (disputing tax debt)

  1. An entity will have effectively engaged in the management of its tax debt, or a portion of its tax debt, if it is in the process of disputing one or more of its tax-related liabilities.
  2. Depending on the circumstances, the entity may be able to dispute an assessment, determination, notice or decision it receives by lodging an objection under Part IVC of the Taxation Administration Act 1953. If the entity is dissatisfied with an objection decision, it may apply to the AAT for a review of the decision, or appeal to the Federal Court. Information on how to seek a review or object to an ATO decision can be found at https://www.ato.gov.au/General/Dispute-or-object-to-an-ATO-decision/.
  3. The ATO will not report an entity’s tax debt information relating to the dispute while:
    • the objection is being decided
    • the review or appeal is pending, or
    • the entity has a right to a review or appeal of a decision.
  4. The ATO may consider reporting the portion of an entity’s tax debt that is undisputed where:
    • that portion of the debt is at least $10,000 and is overdue by more than 90 days (the debt threshold test), and
    • the other reporting criteria are satisfied.

If this occurs, the portion of an entity’s tax debt that relates to a dispute will continue to be excluded from the reported amount.

Exceptional circumstances

  1. The ATO understands that most entities pay their tax on time and manage their tax debts but that some are unable to do so because of exceptional circumstances outside their control.
  2. Where an entity (or in the case of a company, a representative such as a director) is experiencing exceptional circumstances that is impacting on its ability to pay its tax debts, it may be able to claim a temporary reprieve from having their tax debt information reported. Exceptional circumstances may include family tragedy, serious illness, impacts of a natural disaster and other circumstances.
  3. An entity should contact the ATO if it is experiencing exceptional circumstances that are preventing it from managing its tax debts. The entity may be requested to provide evidence to support its claim. Where an entity claims exceptional circumstances, its tax debt remains payable and the ATO can advise on the options available to pay the debt.
  4. The ATO will not however, report an entity’s tax debt information while it is considered to be experiencing exceptional circumstances.
  5. Exceptional circumstances do not include experiencing cash flow issues or financial hardship. If an entity is experiencing cash flow issues or financial hardship which is preventing it from managing its tax debts, the entity should contact the ATO to discuss the options available.

How will an entity be notified before its tax debt is reported?

  1. If an entity meets all the reporting criteria and the ATO intends on reporting the entity’s tax debt information, the ATO will notify the entity in writing at least 21 days before reporting its tax debt information for the first time. This provides an entity with an additional 21 days to take action to prevent its tax debt information from being reported.
  2. The notice will advise:
    • that the ATO intends to report the entity’s tax debt information to CRBs
    • that the entity meets all three criteria for reporting
    • that the entity has 21 days from the date of the notice to take action to prevent its tax debt information from being reported, and
    • how to request an ATO review if the entity disagrees that it meets the reporting criteria or is experiencing exceptional circumstances.
  3. In the 21 days after the date of the notice, the entity can take action to prevent its tax debt information from being reported by:
    • paying its tax debt
    • effectively engaging with the ATO to manage its tax debt
    • requesting an ATO review if it disagrees that it meets the criteria for reporting, or
    • contacting the ATO to claim, and where necessary demonstrate, it is experiencing exceptional circumstances.

How to request a review

  1. As a safeguard, an entity can access an ATO review process if it disagrees that it meets the reporting criteria or if it is experiencing exceptional circumstances. The ATO review process will take place before the ATO reports an entity’s tax debt information. The ATO will not report an entity’s tax debt information while the ATO review process is being conducted.

ATO review process

  1. If an entity receives a notice advising that the ATO intends to report its tax debt information and the entity disagrees that it meets the reporting criteria, it can request an ATO review by calling the ATO.
  2. The entity must request an ATO review within 21 days from the date of the notice. There is no application fee for this review and the ATO will not report the entity’s tax debt information while the ATO review is being conducted.
  3. If the entity requests an ATO review, an ATO officer from an independent area of the ATO will conduct a review of the ATO’s decision to issue the notice. The independent ATO officer will review the entity’s circumstances (including any exceptional circumstances) and consider whether it has met the criteria for reporting. The ATO officer will then decide:
    • whether the entity has met the criteria for reporting, and
    • if the entity’s tax debt information should be reported, having regard to whether any exceptional circumstances apply.
  4. Once the review is complete, the entity will be advised of the outcome of the ATO review.

Complaint with the Inspector-General of Taxation

  1. The office of the Inspector-General of Taxation (IGT) was set up as an independent statutory agency in 2003. Accordingly, it is independent from the ATO. The IGT can assist an entity to address a complaint about the administrative actions of the ATO. Generally, administrative actions relate to the conduct of the ATO in its interactions with an entity, including the policies and procedures which guide these actions. They do not include decisions such as how much tax an entity has been assessed to pay.
  2. ‘Administrative action’ is a broad term that generally covers the fairness and reasonableness of the ATO’s approach in dealings or interactions with an entity. Information on how to make a complaint to the IGT about the ATO’s intention to report an entity’s tax debt information can be found at http://igt.gov.au/making-a-complaint/External Link.
  3. The ATO will consult the IGT before an entity’s tax debt information is first reported. This consultation is to establish if an entity has made a complaint to the IGT about the ATO’s notice of intention to report the entity’s tax debt information. The ATO will not report an entity’s tax debt information, for the first time, where the IGT is investigating, or is intending to investigate, a complaint from the entity about the ATO’s intention to report its tax debt information.

When will an entity’s tax debt information be reported?

  1. Once an entity is notified that the ATO intends to report its tax debt information to CRBs, it will have 21 days from the date of the notice to take action to prevent its tax debt information from being reported. If at the end of the 21 days the entity:
    • has not effectively engaged with the ATO in managing its tax debt
    • has not requested an ATO review of the ATO’s intention to report the entity’s tax debt information
    • is not considered to be experiencing exceptional circumstances
    • has not made a complaint with the IGT about the ATO’s notice of intention to report the entity’s tax debt information, and
    • still satisfies the criteria for reporting,
    • the ATO may report the entity’s tax debt information to CRBs.
  2. Once an entity’s tax debt information has been reported to CRBs, the ATO will send regular updates on the balance of the entity’s overdue tax debts to the CRBs. This will continue until the entity no longer meets the reporting criteria (in which case it will be removed).
  3. The entity will not be notified before the ATO updates the CRBs on the balance of the entity’s overdue tax debts. However, an entity can check its overdue tax debt balance at any time online. Information on how to find out the balance of overdue tax debts can be found at https://www.ato.gov.au/General/Paying-the-ATO/How-much-you-owe/.

What information will be reported?

  1. If an entity’s tax debt information is reported to CRBs, the ATO will provide the CRBs with the following tax debt information:
    • unique identifiers for the entity, such as ABN and legal name
    • the balance of the entity’s overdue tax debts at the time of initial reporting
    • regular updates on the balance of the entity’s overdue tax debt until the entity no longer meets the reporting criteria, and
    • a notification when the entity no longer meets the reporting criteria.
  2. The tax file number of an entity will not be provided.

Who will the information be reported to?

What is a CRB and what will they do with the information?

  1. A CRB is an organisation whose business involves collecting, holding, or using information in order to provide interested parties with information about the creditworthiness of an entity.
  2. The ATO will only report an entity’s tax debt information to CRBs registered with the ATO. The ATO will not receive a fee for any tax debt information reported to CRBs. It will also be a pre-condition to registration that the CRB agrees to the ATO’s reporting terms.
  3. The ATO is providing tax debt information to registered CRBs to enable a more complete picture of an entity’s creditworthiness to be prepared. Interested parties may then use this information to make more informed decisions on the creditworthiness of a business.
  4. It is expected that registered CRBs will include the tax debt information as part of their credit reports which are available for purchase by interested parties (for example, investors, suppliers, and financial institutions). A credit report may include:
    • an aggregate view of an entity’s overall payment behaviour
    • a credit score, and
    • specific details of defaults and legal actions.
  5. Each CRB has their own method of calculating credit scores. A credit score is based on an analysis of an entity’s credit file and is provided on a credit report to assist creditors in determining an entity’s creditworthiness. For example, a new supplier may access a credit report to decide whether or not to extend credit terms to a business.

Registration of CRBs

  1. The ATO will only provide tax debt information to registered CRBs. A CRB will be a registered CRB once they have entered into an agreement with the ATO detailing the terms of the reporting.
  2. To ensure transparency, the ATO will prepare and maintain a public register of registered CRBs. This register will be published on www.ato.gov.au.
  3. In choosing whether or not to enter into an agreement with a CRB, the ATO will consider a number of factors including (but not limited to):
    • whether the CRB is fully compliant with its Australian taxation obligations (including being up-to-date on relevant lodgments and payment of tax debts)
    • the practices, procedures and systems a CRB has in place to deal with and report tax debt information
    • whether the CRB has robust dispute resolution and complaints processes
    • the CRB’s policy on retention periods for tax debt information, and
    • the CRB’s administration capabilities and processes.
  4. The agreement between the ATO and a CRB will set out the terms of the arrangement including (but not limited to):
    • the open and transparent management of tax debt information
    • the transfer and matching of data provided by the ATO
    • the integrity of tax debt information stored on the CRB’s systems
    • the removal of tax debt information where an entity no longer meets the criteria within 2 business days of receiving the ATO instruction
    • the correction of tax debt information within 2 business days of receiving the ATO instruction, and
    • the requirement to log, report and work with the ATO to resolve issues within agreed timeframes.

How long will tax debt information remain on an entity’s credit rating report?

  1. The agreement between the ATO and each CRB will provide that an entity’s tax debt information must be removed from its credit report when the entity no longer meets the reporting criteria. Ordinarily, this will be when the entity has paid its tax debt or entered into a payment plan.
  2. If an entity no longer meets the criteria for reporting, the ATO will instruct the CRB to remove its tax debt information from public access and credit reports. The CRB must remove the tax debt information within 2 business days of receiving the ATO instruction. Once this information is removed, CRBs will not be able to show or use this data in an entity’s credit report or credit history.
  3. This is different to the standard credit reporting industry approach where defaulted debts remain visible on a credit report for a much longer period (generally 5 years).

What to do if an entity’s tax debt information is incorrectly reported?

Contact the ATO

  1. If an entity’s tax debt information has been reported incorrectly or in error, an authorised representative of the entity should contact the ATO. The ATO will investigate and determine whether the tax debt information reported by the CRB matches the information the ATO reported to them.
  2. Where an entity’s tax debt information has been reported to a CRB in error or incorrectly, the ATO will instruct the CRB to remove or correct the tax debt information within 2 business days. The entity will be notified of any removal or correction made in these circumstances.
  3. Where the correct tax debt information was reported to a CRB and the CRB incorrectly reported that information, the ATO will instruct the CRB to rectify the error within 2 business days. This will be a condition of the ATO’s agreements with the registered CRBs. An entity will be notified once the CRB corrects its records.
  4. If the ATO determines that an entity’s tax debt information was correctly reported to a CRB, and the CRB correctly reported the information, an entity will be notified that its tax debt information has been correctly reported.

 

 

Study questions

  1. Is it all tax debts that would be reported?
  2. Is the reporting to a CRB?
  3. Will it be the tax debts of individuals that are initially reported?
  4. Is the 2nd criterion for possible reporting of a tax debt that it is over $20,000?
  5. Is a tax exempt charity exempted from tax debt reporting (under the ABN test)?
  6. Are superannuation debts treated as separate from other tax debts, when assessing the debt threshold?
  7. Does lodging an objection count as ‘engaging with the ATO’ for tax debt reporting eligibility?
  8. Will you get 28 days notice before unpaid tax is reported?
  9. Does ATO consult, first, with the IGT, to ascertain whether he has received a complaint about reporting the unpaid debt?
  10. Will the ATO give tax debt information to all CRBs?

 

 

 

 

 

[answers:no(ABN holder, etc),yes,no(Companies),no($10k),yes,no(all aggregated),yes,no(21),yes,no(ATLO recognised only)]

 

About the author