A controversial proposal which would enable the tax office to share business tax debt information with credit bureaus has privacy issues that need to be ironed out before any program is implemented, small business advocates say.
A Senate committee last week recommended the federal government pass an expansion of Australian Tax Office (ATO) powers which will see third parties gain access to some business tax debt information, despite widespread criticism of the reforms during consultation.
The committee recommended the ATO work with the Inspector-General of Taxation (IGTO) to address a “range of concerns” the tax watchdog has with the proposal, including that businesses with disputed debt could get caught up in the third-party reporting scheme.
The committee gave its tick of approval to the bill, which contains a raft of other amendments, despite uncertainty over how the program will be administered, with the ATO in the process of finalising its approach in recent weeks.
Centre Alliance Senator Rex Patrick criticised the process, saying the tax office had “put the cart before the horse” by asking parliament to pass legislation without adequate consideration of how the scheme will work.
“You ask us to grant a power to the tax office without seeing those crucial elements of the legislation that sit underneath it,” Patrick said.
The reforms enable businesses with more than $100,000 in tax debt which have not engaged with the ATO for at least 90 days to have their information shared with third-party credit bureaus, which could then write it into their credit scores.
The government hopes the program will encourage businesses with high tax debts to engage with the ATO, but the proposal has been heavily criticised in consultation as concerns emerge about small business privacy and the length of notice periods attached to the reform.
The government is pushing for the change in the context of an $11 billion hole in Commonwealth coffers as a result of small businesses not meeting their taxation obligations.
High stakes for small business
Deputy small business ombudsman Craig Latham says the changes are high stakes for small businesses if something goes wrong, particularly because a poor credit score can wreak havoc on company finances.
“The consequences of this are not just your business looks bad, but your finances will be affected,” Latham tells SmartCompany.
“It could be a default of your loans.”
The small business ombudsman supports the changes in principle as a measure to crack down on black economy activity, but is calling for more clarity over how the ATO will administer the scheme.
Latham also wants protections to ensure businesses who do have their information shared can have their records stricken when they get back on track.
“Our key concern is the expungement of data, so it doesn’t go on your permanent record,” Latham says.
Tax watchdog calls for changes
The IGTO made 17 recommendations in its consideration of the broader bill, saying the way the tax debt reforms are drafted doesn’t properly safeguard businesses with disputed debts.
“[The bill] can apply to disputed debts and to taxpayers who arguably are engaging with, or may be seeking to engage with, the Australian Taxation Office either successfully or unsuccessfully,” it said.
The IGTO is also worried the legislation will create a litany of complaints, which it warned legislators it would be unable to cope with under its current resourcing limits.
The tax office said it has no intention of unnecessarily punishing or disadvantaging businesses and there’s no incentive to “incorrectly or unfairly” disclose small business debt to a third-party credit agency, while existing redress mechanisms exist for cases of maladministration.
The committee expressed its own concerns about privacy, particularly in relation to the disclosure of business tax debts in cases where a debt may be in dispute, but did not recommend working any of the IGTO’s recommendations into the bill.
“The committee recognises the efforts of both organisations to engage with stakeholders through consultation, it notes the IGTO’s recommendations which may have been able to be accommodated through closer collaboration had it occurred earlier,” it said.
An ATO spokesperson said the tax office conducted several rounds of consultation in collaboration with Treasury.
“Following the slight changes in the reporting criteria (raising the debt threshold and additional involvement of the IGoT as a further safeguard) the ATO again published our consultation paper for further public comment from 13 August 2019 to 6 September 2019,” an ATO spokesperson said in an emailed statement.
“We are currently reviewing submissions received.”
Patrick, noting previous concern about the abuse of ATO powers, said the bill in its current form fails to properly protect the interests of businesses.
“The Committee should not just leave the ATO to engage with the IGTO; it should do its job properly and recommend the bill be changed to address the IGTO’s concerns,” Patrick said.
The Institute of Public Accountants (IPA) has criticised the legislation for failing to include “important safeguards” on how credit agencies would be required to remove information about business tax debts from their systems.
Tony Greco, general manager of technical policy for the IPA, says the body supports the bill in principle but wants changes made before it’s passed.
“Not being able to access credit can do a lot of damage to a business and also impact its survival,” Greco tells SmartCompany.
Greco says the legislative framework needs to include additional safeguards to ensure when a businses does engage with the tax office, either by paying their debt or going on a payment plan, credit agencies delete any information promptly.
The Senate committee also expressed concern about the proposed disclosure timeframe outlaid in the current reforms, which requires the commissioner of taxation to notify a taxpayer at least 21 days before their debt is disclosed to a third party.
Intermediaries like accountants are also not required to be notified alongside business owners, which Greco says is nonsensical.
“It doesn’t make any sense that they wouldn’t also get notified at the same time if just to ensure someone gets it,” he says.
This story was updated at 8:00AM AEST 12 September to include additional comment from the ATO.
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