Delinquent Tax Debt disclosure to credit reporting bureaus – consultation on draft legislation and ATO’s administrative approach

On 11 January 2018, the Minister for Revenue and Financial Services released exposure draft legislation and explanatory material for public consultation that will authorise the Australian Taxation Office (ATO) to disclose business tax debts to credit reporting bureaus (CRBs) where the businesses have not effectively engaged with the ATO to manage their debt.

The Government announced in the 2016-17 Mid-Year Economic and Fiscal Outlook (MYEFO).

The aim is to:

• allow a more complete assessment of the creditworthiness, of an entity, possible by giving details of delinquent tax debts, to credit reporting agencies; and
• encourage businesses, to engage with the ATO, to manage their tax debt.

The legislative material was a draft bill, to permit the disclosure, and a draft legislative instrument, setting out which tax debts the Commissioner can report.

The draft legislation would create a new exemption, from the tax secrecy laws, for disclosure of certain tax debt details, to certain ‘CRBs’ (by inserting a new s355-72, in Div 355 of Schedule 1 of the TAA). This provision would do the following.

1. Allow the Commissioner to specify the class of persons, whose tax debts could be disclosed, by legislative instrument – see below (ss(1)(c)&(5));
2. Allow the disclosure, if it is for the purpose of enabling CRBs to assess creditworthiness (ss1)(d));
3. Require the Commissioner to give the taxpayer at least 21 days notice of the proposed disclosure, of the tax debt(s), to the CRB (ss(1)(e)(ii), (2), (3)).
4. Require the Commissioner to first check, with the Inspector General of Taxation (IGT), that no complaint about the proposed disclosure has been made to the IGT (ss(1)(e)(i)).
5. Permit the Commissioner to advise a CRB when the taxpayer no longer owes the money (or more strictly, is no longer in the class of person specified as being eligible for disclosure of their tax debt information – ss(4)).
6. Requires the Commissioner to report only to CRBs that he has ‘recognised’ and included on a list of these CRBs (ss(6), (7)).

Readers will see that the only real protection, to taxpayers, in this draft of the legislation, is the requirement for 21 days notice. The real substance, of whose tax debts can be disclosed, is left to the Commissioner to determine by way of ‘Legislative Instrument’ (in a sense, allowing him to write his own ‘blank cheque’ – though such instruments can be disallowed by Parliament).

The Draft Legislative Instrument would allow the following tax debts to be disclosed to CRBs.

1. The taxpayer must have an ABN (para 7(1)(a)), other than certain excluded persons: a DGR, not-for-profit, government entity or a complying superannuation fund (under para 7(2)).
2. The tax debt must be at least $10,000 and be overdue for more than 90 days (para 7(1)(b)).
3. The taxpayer has not been ‘effectively engaging [with the ATO] to manage their tax debt’ (para 7(1)d)), which is deemed to be all the time, unless the taxpayer:   (a) has entered into, and is complying with, a payment plan under s255-15 of the TAA1;   (b) objected to the assessment under s14ZL of the TAA; or  (c) is appealing that objection decision under s14ZZ of the TAA (para 7(3)).

Also on 11 January 2018, the ATO uploaded an article on his website, as to how he proposes to administer this proposed tax debt disclosure power (see the link to the related TT Article below).

The Government is seeking the community’s views on the exposure draft legislation, exposure draft legislative instrument and accompanying explanatory materials. At the same time, the ATO is also consulting on its proposed administrative approach to this proposed measure.

[Treasurer’s website: media release; Treasury website: consultation page, Draft Bill, Draft EM (Bill), Draft Legislative Instrument, Draft EM (Leg Inst); related TT Article (ATO’s consultation statement); FJM; LTN 7, 11/1/18; Tax Month January 2018]

Study questions

1. Is the main change to the law an exception to the privacy provisions?
2. Would taxpayers would get 28 days notice of disclosure?
3. Under the proposed legislative instrument, is the tax debt threshold (for disclosure) is $10,000?
4. Would the Commissioner be able to disclose an unpaid tax liability of a complying superannuation fund?
5. Will the Commissioner have to first check, with Inspector General of Taxation, that no complaint has been lodged, about the disclosure?
6. Are both Treasury and the ATO consulting about the introduction of this measure?

[answers:yes,no(21),yes,no(ABN exception),yes,yes]