By Westcourt Blogger. For a long time families in business have used the Tax Office as a second bank when a cash flow crisis hits. And why wouldn’t you – no setup fees, no application process and no real implications for not paying on time. You just incur a higher than normal, tax deductible, interest cost.
Sadly this approach is about to change.
From 1 July 2017 delinquent taxpayers might be reported to a credit reference agency.
This is important to a families who own businesses. For these businesses credit rating will impact on the ability of the business to obtain finance and grow.
The Tax Office might report you if:
1. The person owing the debt has an Australian Business Number (ABN);
2. The debt exceeds $10,000;
3. The debt is more than 90 days old;
4. The debt is not being disputed; and
5. There is not payment plan for the debt.
Thankfully the Tax Office will notifying the entity about the impending decision to report them to a credit rating agency; but if this warning is ignored then credit rating agencies will be notified of the delinquent debt.
For many families in business their credit rating is an important and valuable tool. This is especially the case for families that run and own property developments, machinery hire, farming enterprises or large manufacturing businesses. And when a business obtains a credit notification it is most likely that a person’s individual credit score will be adversely affected now as well. So the need to manage your tax affairs in a controlled and calculated manner is becoming more important than ever.
To avoid being reported to a credit rating agency, families who own the business can pay the outstanding debt before the due date or enter into a payment arrangement. Under a payment arrangement, you would need to agree to:
1. lodge all outstanding income tax returns and activity statements before making the arrangement.
2. make consistent payments as agreed, and
3. continue to lodge and pay all future debts on time and in full.
Failure to complete all these points may cause the debt to be referred to the credit reporting bureaus, which could reduce borrowing capacity in the future.
However this is not all bad news. This new reporting requirement can help a business understand the credit worthiness of who they lend money or deal with. The use of Cloud-based accounting and third party web services have credit check facilities in place so users can see if a particular customer should be extended credit.
These types of services are good for businesses who rely on one customer but have difficulty in understanding their solvency (it would have been good to know about Forge in advance).
There is no legislation on the table at the moment however the Tax Office has more detail on the new measures at https://goo.gl/TD4TZL
