Many medical practitioners starting out are often faced with having to hone their cash flow management to ensure they don’t get caught out with big tax bills that are difficult to pay, resulting in large tax liabilities owed to the Australian Taxation Office (ATO).
This in turn can impact borrowing capability, as the recent implementation of a new Comprehensive Credit Reporting (CCR) system now gives credit providers a better understanding of your financial behaviour.
Previously, a credit provider would only have become aware that a tax liability existed if the ATO had commenced proceedings and been awarded judgement, which would then have been recorded on a credit file.
Under additional CCR regulations effective from 21 February 2020, the ATO has an obligation to disclose outstanding tax debts to registered credit reporting bureaus (CRBs) where a business has a tax debt of more than $100,000, the tax debt is overdue by 90 days or more and there has been no attempt to engage with the ATO to manage the tax debt.
Where a business entity has a debt on their income tax account and activity statement, they will be added together to determine if the entity’s total overdue tax debt meets the debt threshold test.
If all criteria are met, written notification from the ATO will grant the business a 28 day period to engage with the ATO to avoid having its tax debt information reported. If no communication is received, a tax debt default will be recorded on the credit file for a period of five years. It is expected that the CRB will include this tax debt information within their credit reports to interested parties. This could considerably reduce or potentially eliminate the borrowing power of a business.
At Pilot we engage in regular communication with our clients, outlining future tax payments well in advance so there are no unexpected surprises. Additionally, we can assist businesses with cash flow budgeting to forecast when future tax debts are payable to minimise any other issues. For existing tax debts, Pilot can liaise with the ATO on your behalf to assist with establishing repayment plans to avoid any negative credit reporting.
If you need help managing these affairs, please contact Kristy Baxter or Angela Stavropoulos on [email protected] or 07 3023 1300 today.