ATO debts to be reported to credit agencies

The Federal Government’s Mid-Year Economic and Fiscal Outlook (MYEFO) included an announcement that from 1 July 2017 the Australian Taxation Office (ATO) can disclose to Credit Reporting Bureaus the tax debt information of businesses that have not effectively engaged with the ATO to manage those debts. This will be a new and unprecedented power for the ATO.

This measure is part of the Government’s strategy to reign in overdue tax and improve transparency of taxation debts, and will initially only apply to businesses with an Australian Business Number and tax debt of more than $10,000 that is at least 90 days overdue.

The policy should not come as a surprise given it has been on the Government’s agenda for a number of years, having been touted at least as far back as 2014.

The MYEFO confirms the ATO is owed $19b in overdue tax, approximately two thirds of which is owed by small businesses with a turnover under $2m. The rising level of debt, particularly in small business, presents a growing challenge for the ATO as they are faced with managing the delicate balance of collecting tax arrears without (where possible) suffocating the cash flow of the business.

Compounding this challenge, the current consequences for failing to pay the ATO have no real tangible impact on the day-to-day operations of a business. Failure to lodge and general interest charge penalties, and in some instances imposing personal liability on directors, do not typically influence a business continuing to trade. This means that ATO debt is often pushed to the back of the queue, and will be allowed to accumulate—often until the ATO pursue legal proceedings.

That landscape is about to change, as defaults being recorded on a taxpayer’s commercial credit file will have immediate and lasting consequences for a defaulting taxpayer. A credit default is a black mark that lasts for five years, and creates an environment where support from financiers may be withdrawn and supplier credit stopped.

PPSR pressure after increased insolvency levels

The importance of registering on the Personal Property Securities Register (PPSR) has become increasingly evident as Australian companies see a steady increase in insolvencies and fall in cash flow.


Total Australian insolvency appointments were little changed at 3,690 in the June quarter 2012, but are noticeably higher than Global Financial Crisis (GFC) levels of 3,5691 (refer to graph on right). This is due to a struggling and uncertain economy, which has become evident through an increase in trade payment days to 53.6 days in the June quarter 20122 (refer to graph below).

The number of Australian firms paying bills on time fell to 16.5% in 4Q FY2012, while the number of trade payments made after the standard 30-day term was 62% or two-thirds of total payments. The amount of severely delinquent payments (90+ days overdue) also jumped 1.4% quarter-on-quarter and 13% year-on-year.

Small businesses recorded the most significant deterioration in payment terms, with payment days increasing by 2.2 days to 53.2. Cash flow issues within the SME sector are likely to have a knock-on effect to larger businesses and the rest of the economy.

Several notable insolvency cases since the introduction of the PPSR in January 2012, including WOW Sight and Sound and Super Butcher, have seen many unsecured creditors unlikely to recover outstanding payments due to their failure to register on the PPSR. WOW and Super Butcher were put into administration in February and April of this year, respectively.

Meanwhile, although there has been a small reprieve in voluntary administrations to 387 in the March quarter (refer to graph below); levels of voluntary administrations have little changed since the 2009 GFC, according to recent Australian Securities and Investments Commission (ASIC) data1.

Voluntary administration is where the company or board voluntarily elects to appoint an administrator, in circumstances where the company is already under significant financial hardship.

Unlike external administration, voluntary administration may offer those outside the company little forewarning of distress, as thereare no court actions or notices. In these circumstances, creditors and suppliers are more likely to be caught unaware and unregistered on the PPSR.

The current uncertain economic environment and high insolvency rate has emphasised the importance of creditors and suppliers to register their security interests on the PPSR. Similarly, companies will need to closely monitor both their suppliers and creditors to remain on top of market changes.

From Globalx