“Black hole of credit-reporting bureaus”: Government proposes allowing ATO to share tax debt info


ATO commissioner Chris Jordan.

A government proposal to allow the tax office to share information about unpaid bills with credit bureaus is being closely watched by the Australian Small and Family Business Ombudsman (ASBFEO), amid concern the plan could restrict access to finance.

The federal government yesterday introduced legislation that would bolster the ATO’s ability to address the $10 billion small business tax gap by placing extra pressure on companies which rack up tax debt in excess of $100,000, overdue for at least 90 days.

Under the proposal, the tax office would be allowed to disclose business tax debts to credit-reporting bureaus, which in turn could negatively affect the credit scores of related directors.

The ATO would not be allowed to pass on the information if the tax debt is disputed, or if a payment plan for outstanding debt is in place.

But draft legislation released by Treasury on Thursday morning contains few safeguards for what happens to the information after it is handed to credit bureaus, which has the ASBFEO worried.

A spokesperson for the ASBFEO said on Thursday it supported the legislation in principle, but would engage with government on the details.

“Our underlying concern is the black hole of credit-reporting bureaus,” the spokesperson said.

“How they manage their data is a complete mystery to everyone, other than the people who work there.”

A negative credit score can have a significant effect on the ability of a small business to continue operating, particularly those who may need access to finance to get through a difficult period.

“It means you have zero access to funding because the first thing a lender looks at is your credit rating,” the ASBFEO spokesperson said. 

The ASBFEO will suggest adding additional protections to the legislation which would ensure credit bureaus treat the information they’re provided with appropriately.

The timing of the proposal is interesting for the tax office given it revealed earlier this week it’s introducing new safeguards to prevent disputed business debts from being pursued in an overly aggressive manner.

ATO second commissioner Jeremy Hirschhorn revealed the changes in an interview with The Australian earlier this week, recognising the adverse effects ATO mistakes can cause.

It comes as the ATO repositions its relationship with small businesses after a period described as a ‘horrible year’ by the House Standing Committee on Tax and Revenue.

An ABC Four Corners report published in March last year alleged the ATO had engaged in intimidatory tactics in dealings with small businesses, including by being over-eager to issue business crushing garnishee notices, which enable it to take money directly from bank accounts.

A subsequent review conducted by acting IGTO Andrew McLoughlin did not sustain allegations the ATO directed a small business “cash crab”, but did reveal an ATO manager “joked” about issuing garnishee notices.

The ATO whistleblower who was responsible for taking details of this alleged activity public now faces criminal charges that could see him spend the rest of his life in prison.

A public campaign to have the charges dropped is still underway.

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2 years ago

On 9 February 2018, when this was first mooted, I made a submission to Treasury advising that Credit Reporting Bodies (“CRB”) report on consumer credit and trade credit. In either instance, credit is provided when a payment of a debt due by the debtor to the credit provider is deferred or when the debtor incurs a deferred debt to the credit provider. Credit cannot be provided without some form of contract, which may be by a credit contract (written or verbal) or by agreement of a company’s terms and conditions.
There is no contract to pay any tax debt due to the Government. A taxpayer signs no document agreeing to the payment of tax as it’s a compulsory sum due to a Government, levied on a taxpayer to meet its expenses, for various activities. There is no credit provided because there is no agreement, verbal or otherwise, to defer the debt. Under normal circumstances, the only tax debts that would be recorded are those where the ATO has obtained judgment in a Court or Tribunal.
The ATO wants to abuse the credit reporting system to stop a company owing monies to it from gaining further credit but when an arrangement to pay the debt is made, then the record will be removed. Credit providers do not have this ability as it would violate the requirements of the Privacy (Credit Reporting) Code 2014 (Version 1.2).
The proposed ATO’s usage would, in itself, destroy the integrity of the credit
reporting system as by removing the tax debt once communication and no doubt
payments are made, credit providers then have no way of knowing the record was
ever there. This is pernicious legislation and if passed, one can see it would not require too much amendment to allow for the same types of debt to be recorded against individuals. This could be tax debt or even unpaid child support payments.