Reporting of Company Tax Debts by the ATO and Consequences for Directors

As it endeavors to recover billions of dollars in outstanding payments‭, ‬the Australian Taxation Office‭ (‬ATO‭) ‬is now disclosing a‭ ‬company‭'‬s overdue tax debts to credit reporting agencies‭ (‬CRAs‭), ‬also known as credit reporting bureaus‭ (‬CRBs‭). ‬

The ATO

It is important to note that the reporting of such debts is not a newfound power of the ATO, as the necessary legislative amendments occurred in late 2019. However, the ATO is intensifying this process as the economy recovers from the effects of the COVID-19 pandemic and moves away from the tax assistance approach provided during this time. As a result, for the 2023-24 financial year, the ATO is expecting to issue more than 50,000 notices of intent. Therefore, awareness of such practices is essential for businesses.

ATO Disclosure

For the ATO to be able to make a disclosure of this nature, a business must meet the following criteria:

The business holds an Australian Business Number (ABN) and is not an excluded entity.

The business has one or more tax debts and at least $100,000 is overdue by 90 days or more.

The business is not engaging with the ATO to manage their tax debt.

The business does not have an active complaint against the Inspector-General of Taxation Ombudsman (IGTO) about the ATO’s intent to report the business’ tax debt information. Excluded entities include a deductible gift recipient, complying superannuation fund, registered charity, or government entity.

Business’s Tax Debt

Additionally, the ATO notes that it may decide not to report information regarding a business’ tax debt but prevent this from occurring temporarily, if the individual is experiencing an exceptional circumstance such as family tragedy, serious illness and impacts of natural disaster. However, these circumstances are assessed on a case-by-case basis and the ATO not reporting tax debt information cannot be guaranteed.

Where the ATO identifies a business’s tax debt, the ATO will provide that business with a ‘notice of intent to disclose’. This notice will include;

Information regarding the ATO’s intent to disclose a business’ tax debt information to a CRA or CRB;

That the business meets the relevant criteria for this reporting to occur; 

The information that the ATO intends to disclose to the CRA or CRB; and 

The steps that can be taken by the business to avoid the disclosure of their debt information.

Rectifying Debt

Upon receipt of a ‘notice of intent to disclose’, a business will have 28 days to undertake the necessary action to rectify their debt and avoid having this information reported to CRAs or CRBs. The disclosure of tax debt information to CRAs or CRBs has many consequences for businesses. For example, it can negatively impact a business’s ability to receive finance in the future.

A company’s outstanding or overdue tax debt can also have substantial impacts on the director of the company. Where a business has an outstanding or overdue tax debt, its director can become personally liable by way of a ‘director penalty notice’ and incur penalties which are equal to their company’s:

• Unpaid PAYG withholding; 

• Net GST; and

• Super guarantee charge.   

Director Penalty Notices

Director penalty notices are important points of consideration prior to the appointment of a new director or the resignation of an existing one. Once an individual is appointed as a company director, they become personally liable for any outstanding tax debts of that company. Similarly, upon resignation from the position of director, that individual remains liable for the director penalties of the company due before the date of their resignation and due after in certain circumstances.

As the ATO continues to increase the reporting of company tax debts to CRAs or CRBs, knowledge of such practices and the subsequent impacts is essential for businesses and their directors. If you would like advice or assistance in relation to the disclosure of tax debts or director’s penalty notices and how this affects your business, please contact our Partners and accredited business law specialists Justin Thornton on jthornton@marsdens.net.au and Rahul Lachman on rlachman@marsdens.net.au or otherwise by calling them on (02) 4626 5077

The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.