The Australian Taxation Office (ATO) will soon be empowered to report a business’ overdue tax debts to credit reporting bureaus under new draft legislation.
ATO enables better credit control by advising credit reporting bureaus when businesses don’t pay debts.
The legislation, still to be drafted and completed, will require a business to “effectively engage” with the ATO to pay their tax debts in a “timely manner”. In circumstances where a business’ tax debt is at least $10,000 and this has been overdue for more than 90 days, the ATO would then be authorised to report this information to the credit bureaus, such as Equifax and Experian. The draft legislation and explanatory materials are available on the Treasury website, and the consultation process has now been completed.
This is great news for Finance and Credit Managers, since they will be able to use this information to assess whether or not they are going to extend credit to a particular company. They will have a lot more visibility around the creditworthiness of a business.
This is also great news for debt collectors, such as Debt Recoveries Australia. This legislation will effectively weed out the businesses that are in financial distress and whose bad debt impacts not just other businesses but the economy in general. These businesses will be forced to wind up earlier, instead of mounting up further debts. Those businesses that do would have eventually wound up anyway. This effectively speeds up the whole process of a business who has become insolvent, to finally cease business, without causing further damage to the economy.
How will it benefit debt collectors?
This is going to encourage businesses to deal with their debts in a timely manner, starting with the ATO, which is Australia’s largest creditor. Businesses will now be forced to look at their outstanding debts before it’s escalated. This will flow onto the other debts that the business owes. As these businesses become more financially responsible, they will be more proactive in dealing with debt collectors and litigation agents, if and when we come calling.
Businesses should not be hesitant to speak openly with debt collectors about their situations, since we are working for both sides to get a “win-win” scenario. Similar to the ATO, debt collectors are obliged by the ACCC Debt Collection Guidelines to listen to businesses who are in financial hardship and then to perhaps offer extensions or a repayment plan.
This will also assist debt collectors in assessing the recovery potential against a particular company, since these unpaid tax debts will be more visible. This information will be made available for debt collectors and credit managers to access through their preferred credit bureau. We can then assess whether or not a case is worth pursuing, either by debt collection or by legal means.
Any legislation that encourages businesses to repay their debts in a timely manner is good for the economy in the long run. Bad debt is simply bad for the economy as nobody wins in that scenario. I welcome the ATO’s proactive approach in dealing with credit control and I will be watching the effect of the legislation closely.
How do you feel about the new legislation?
|Adam Stewart is a Debt Collection Expert and owner of ADC Legal Litigation Lawyers, a legal practice specialising in commercial advice and litigation, debt recovery and insurance claims recovery disputes. For more information, email us at firstname.lastname@example.org or call 1300 799 820. Talk to us about your litigation or dispute concerns via Skype at adclegal.|