The Australian Taxation Office (ATO) is warning small and medium-sized businesses (SMBs) that if they don’t pay their taxes on time, they could face consequences like a reduction in credit rating, Mozo reported on Wednesday (Feb. 12).
Laws that were passed in 2019 empowered the ATO to report small businesses’ tax debt to credit reporting agencies if certain criteria were met, such as if a business owed over $100,000 in tax debt or was more than 90 days in arrears. The laws are now in effect, but many business owners don’t know about them, according to national business funder Scottish Pacific.
“Traditionally, many SMEs have used the ATO almost like a ‘line of credit’ by not paying their commitments on time,” said Wayne Smith, senior executive of Scottish Pacific. “This action will now likely have an adverse impact on credit ratings and credit insurance limits, making it harder to maintain or extend credit terms with suppliers.”
Smith said the new laws “are a clear message” that businesses can’t view the ATO as a line of credit.
“It’s not the best option, but if a business is tight for cash, they often make a decision to pay other creditors and delay paying the ATO, thinking they will eventually put a payment arrangement in place,” Smith said. “With forecasts for a poor economic outlook in 2020, if ever there was a time to make sure you have a sustainable funding structure in place for your business, that time is now.”
In its recent SME Growth Index, Scottish Pacific found that 27.8 percent of respondents said meeting tax payments promptly would create cash flow issues in their business.
The Australian government said in August that it was preparing a strategy to combat tax dodging among small businesses, amounting to an estimated $11 billion in missing tax payments. The ATO warned that there is an $11.1 billion small business “tax gap” — the difference between income tax collected and what small businesses actually owed.