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

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.