ATO reporting overdue tax debts to credit reporting bureaus

Legislation allows the ATO to report overdue tax debts to credit reporting bureaus. Here is what you need to know

In recent years, the Australian Taxation Office (ATO) has increasingly turned to credit reporting bureaus (CRBs) to manage overdue business tax debts, especially those exceeding $100k and unpaid for over 90 days. This shift has significant implications for businesses, particularly those that may already be struggling with cash flow issues. Professionals in accounting, law and insolvency that are advising these clients need to be aware of the impacts that CRB reporting may have on businesses.

So, why is the ATO embracing this tool more frequently, and what can be done to avoid the fallout?

ATO's evolving approach to debt recovery

Prior to the COVID-19 pandemic, the ATO relied heavily on traditional legal recovery methods if businesses failed to comply, such as issuing statutory demands and initiating winding-up proceedings. However, with the impact of the pandemic and natural disasters like the bushfires, the ATO hit pause on its more aggressive tactics, becoming a 'sleeping giant', significantly reducing its recovery efforts as businesses across Australia faced unprecedented challenges.

Now that we are in the post-COVID era, the ATO has sharpened its tools. Credit reporting and Director Penalty Notices (DPNs) have emerged as favoured methods of encouraging businesses to proactively engage with their tax obligations. By reporting unpaid tax debts to CRBs, the ATO effectively forces businesses to act, whether by seeking professional help or actively engaging with the ATO to deal with the unpaid tax debts.

Triggers for CRB reporting: When does the ATO act?

One of the most common reasons a business ends up with overdue tax debts that warrant CRB reporting is a lack of engagement with the ATO. This often starts with missed lodgements, such as failing to submit Business Activity Statements (BAS) or Income Tax Returns (ITR). Couple this with a failure to actively negotiate payment of overdue tax debts, and the business becomes a target for ATO enforcement.

Put simply, burying your head in the sand when it comes to tax debts is not a viable strategy. For businesses with an ABN, the threshold for reporting is $100k in overdue debt. Once this figure is exceeded, the ATO may proceed with CRB reporting if no meaningful engagement occurs within 90 days.

Consequences of CRB reporting: The domino effect

Once a business’ overdue tax debts are reported to CRBs, the consequences can be severe. It affects not only the company’s ability to obtain credit but may also impact on the personal finances of associated persons, such as directors and shareholders. With a tax debt on file, credit providers will likely refuse financing or impose stricter terms, such as suppliers requiring cash on delivery. This puts further strain on cash flow—often already a major problem for the business.

Moreover, directors who rely on their business as their major source of income will find themselves in an even more precarious position. Any future attempts to secure personal financing, whether for a mortgage or other loans, are likely to come with higher interest rates or outright rejection.

Industry impact: Manufacturing, hospitality and tourism

Certain industries, such as manufacturing, hospitality and tourism, which often face cash flow volatility, may feel the pinch of CRB reporting more acutely. For these sectors, being forced onto cash on delivery terms could be terminal. Once credit lines dry up, businesses that operate on tight margins may struggle to stay afloat.

How to mitigate the risk: Early engagement is key

The most effective way for businesses to avoid the damage of CRB reporting is early engagement. Accountants and lawyers advising clients in financial distress should stress the importance of timely BAS and ITR lodgements, even if the full payment cannot be made immediately. Engaging with the ATO early to negotiate a payment plan can drastically reduce the risk of being reported to a CRB.

Key strategies 

• Negotiate effectively with the ATO.
• Proactively manage tax obligations.
•  Develop payment plans that won’t cripple your cash flow.
• Cashflow management, staying on top of invoicing and keeping timely records are essential business practices.
•  Speak to an insolvency specialist. Should the business already be in trouble, advisers should consider recommending clients to consult an insolvency specialist, like RSM, sooner rather than later. Early intervention opens up more options for restructuring debt or even formal appointments like voluntary administration or liquidation, which could salvage the business or at least reduce directors from potential personal liability.

The role of professional advisers

As trusted advisers, lawyers and accountants are often the first point of contact for businesses in trouble. It is crucial that you advise clients to engage with the ATO, rather than avoid it, and seek professional help if they cannot meet their obligations. At RSM, we specialise in guiding businesses through these challenging times, helping them assess their options and implement solutions tailored to their specific circumstances.

If your clients are at risk of ATO credit reporting, now is the time to act. By taking a proactive approach and seeking professional advice early, businesses can minimise the impact on their credit profile and potentially save the business from insolvency.

Need expert advice? Contact RSM today

RSM can offer a free, confidential initial consultation to help businesses in financial distress explore their options. Don’t wait until it’s too late—contact our restructuring and insolvency specialists today to start mapping out a plan for recovery.

If you or someone you know is experiencing financial distress and needs mental health support, please contact:

• Lifeline on 13 11 14
• Beyond Blue on 1300 224 636
• Headspace on 1800 650 890