The peak body representing self-employed Australians says proposed legislation to allow the Australian Taxation Office to report small business tax debts to credit reporting agencies “must be withdrawn”, as the group vows to fight the bill “the whole way” because of its potential to cause serious harm to business operators.
In January, the federal government released draft legislation to allow the change, after outlining plans in the 2016-2017 Mid-Year Economic and Fiscal Outlook (MYEFO) statement to extend the powers of the tax office to allow it to report tax debts to credit bureaus when businesses were not “actively engaging” to resolve these.
Self-Employed Australia executive director Ken Phillips tells SmartCompany the proposed laws stand to “destroy the reputation” of many self-employed Australians and sole traders, because current dispute resolution methods within the tax office give an unfair advantage to businesses that have more resources to dispute a debt.
“We believe the ATO’s existing powers are already draconian and off the deep end,” he says.
“I have said we will fight this the whole way, and we’re very clear: this has to be withdrawn.”
In its submission on the draft legislation, Self Employed Australia says it opposes the legislation because it believes “the ATO abuses [its] powers in order to bully and harass small business people into paying alleged tax debts that are often false or poorly supported by the evidence”.
“If Parliament were to give the ATO additional power to report small business people’s alleged tax debts to credit rating agencies, it would further extend the ATO’s ability to bully, harass and destroy small business people,” the organisation says in its submission.
Phillips is worried the laws could see the tax office reporting debts of small business owners to credit agencies in circumstances where the small business owner contests there is a genuine debt there in the first place.
“The current powers of the ATO enable it to raise an allegation of a debt, and under the law, that allegation of the debt at law becomes a debt,” he says.
He is concerned that very small businesses, including those that operate as sole traders, stand to be hit hard if the ATO ends up telling credit agencies there is an unresolved debt on their books.
“It could destroy your reputation, then there’s all the angst that goes with that. The enormous pressure it could create within your family,” he says.
Under the draft legislation, the tax office would only be able to tell credit bureaus about unresolved debts after giving the taxpayer notice, and only in cases where the taxpayer is not working with the office to resolve the debt.
The explanatory memorandum of the draft legislation indicates the ATO would not be able to report a debt in cases where there was an ongoing objection about the tax liability that has gone unpaid, or an ongoing complaint to the ATO from the taxpayer about the issue.
However, Self-Employed Australia says while there are “plenty of people who try to rip off the tax system”, business owners at the smallest end of the spectrum often feel powerless to contest these debts in the first place.
Phillips says this could lead to the ATO reporting tax debts that small business owners say should never have existed. He refers to cases where says small business owners have been hit with a tax bill under personal services income tax laws. These operators want to challenge the claims but feel unable to do so.
“Our experience with the tax office is that they don’t like backing down,” Phillips says.
Warnings that “safeguards” should be put in place
Minister for Revenue and Financial Services, Kelly O’Dwyer, has championed the plan as a way of reducing the “unfair advantage” that some businesses receive because their credit scores are not affected even when they have unpaid tax debts.
However, other stakeholders have said that while the policy is a good idea in theory, it could inadvertently disadvantage smaller operators.
Last month, the Institute of Public Accountants said it supported the policy but believes the government must put in place safeguards so that credit agencies are informed when a business has settled its debt.
The legislation means credit agencies would have to remove a reference to a tax debtor within two days of that debt being settled, but IPA chief executive Andrew Conway said it’s unclear how the ATO is expected to give this advice to credit agencies.
“This requirement is left to the administrative powers of the ATO and is not currently in the proposed legislation,” he said in a statement last night.
When contacted by SmartCompany, the ATO referred businesses to its guidelines for objecting to an ATO assessment.
“As a general principle we expect you to pay all tax debts on time even if you are disputing the debt,” the tax office advises.
The consultation process for the draft legislation was completed in February and the government is yet to outline a response.