How A Tax Debt Will Affect Your Small Business Loan

Having a tax debt is no easy matter, especially if it’s unplanned for. It can happen to anyone at any time and can be detrimental to your cash flow, your credit rating score and your ability to secure a loan to overcome your hardship for years to come.

Recent rulings and changes to privacy regulations introduced in 2019 have meant that the Australian Taxation Office (ATO) can now report tax debts to Credit Reporting Bureaus (CRBs).

The Rulings

New ATO powers came into effect after the federal government passed a law in late 2019 to protect the Australian economic landscape to report business with over $100,000 in tax debt greater than 90 days. The business entity must have an ABN, have one or more tax debts, are not engaging with the ATO themselves or through a tax agent to manage the debt and don’t have an active complaint with the Inspector-General of the Taxation Ombudsman (IGTO) with an attempt to report the tax debt.

There are exceptions to this ruling:

  • Gift-deductible gift recipients
  • Complying superannuation funds
  • Registered charities
  • Government entities are not included in this ruling.


What To Do If You Have A Tax Debt

If you have a debt, it’s best to get start a conversation either directly with the ATO or through a registered tax agent who can advise and field communications with the ATO. There are less chances of a tax debt being disclosed if you’re seen to do something about your debt.

The ATO will hold onto your data if you’re working with them on a payment plan or applied for a release from the ATO debt. Active objections with the Administrative Appeals Tribunal (AAT), or with the Court against a tax ruling, or with the IGTO will also be considered with the disclosure ruling.

Business Credit Score

Your business credit score indicates the financial position of your business and is used as a financial indicator by banks and lenders to assess the risk of lending money to your business. A business credit score is different to a personal credit score but both may be checked when you apply for a loan.

A business score will rake commercial indicators into account such as:

  • Registered defaults – supplier payment defaults
  • Director information – previous bankruptcies or court judgments
  • Public records – missed tax liabilities
  • Time your business has been in operation – newer business are considered to be more risky
  • Previous credit enquiries – how much credit has been sought on previous occasions

A business score is rated somewhere between 0 – 1200, with 0 being the lowest end of the scale and 1200 the highest credit score. A score between 622 – 725 is considered to be good. A very good business score is between 726 – 832, and a score over 833 is considered to be excellent.


Exceptional Circumstances

There may be other valid reasons why you’ve incurred a tax debt and can’t pay it back. These circumstances will be taken into account if you’re temporarily unable to pay back the debt. Final decisions are decided on a case-by-case basis by the ATO, and include:

  • A family tragedy
  • Serious illness
  • Impacts of natural disaster

If your business suffers cash flow issues or financial hardship through conditions not considered to be exceptional circumstances, you should still contact the ATO or your tax agent if they prevent you from paying back a tax debt.

Disclose Notice

The ATO must follow certain protocols and procedures when they inform you of your tax debt, and will send a written notice if they plan to disclose your tax debt information. In this letter, they will state their intent, that you meet for reporting, the information they intend to report to the CRB, what steps you should take to avoid them reporting and that you have 28 days to take action from the date of the notice.

Contact should be made if you think a mistake has been made or if you disagree with the notice. Don’t ignore any communication from the ATO.

If you have a tax debt, there are a number of options to help you pay down your debt, however the best thing to do it start a conversation with the ATO to devise a payment plan before you incur more debt from a lender to pay off your tax debt. By opting to start a payment plan, the ATO will not report you to a CRB.

Ultimately, the best way to get rid of debt is to pay it off as fast as you can. A tax accountant can help you, liaise with the ATO, plan to pay off your tax debt, negotiate payment instalments or a deadline extension and also plan to minimise your tax for the future. Phone 1800 367 487 and chat with a friendly professional today.