ATO threatens to drop tax debt bomb on specfestor tradies

Via Banking Day:

The Australian Taxation Office can disclose tax debt information to credit reporting agencies, following the passage of a tax bill last week.

Under normal circumstances, it is an offence for a taxation officer to disclose protected information that has been acquired by them as a taxation officer.

Under the new law, included in Treasury Laws Amendment (2019 Tax Integrity and Other Measures No 1) Bill 2019, tax debt is put on a similar footing to other debts.

The government rationale is that credit providers and businesses will have a more complete picture of the creditworthiness of a business.

I have no data on this but my guess is that that a million specufesting tradies are on tenterhooks here. Why? I reckon that the ATO is the number one secret bank in Australian property investment as borrowers boost mortgage capacity by ‘managing’ hitherto secret ATO debts.

Fortunately for these ‘businesses’, the ATO will only disclose these debts to bankers if they are larger than $100k and have not gotten on a payment plan.

If this law were to expand then it will be a material blow to the property market as mortgage servicing measures suddenly crater for an entire class of ponzi borrowers.

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

Comments

  1. Professor DemographyMEMBER

    You mean tradies who are using cashflow to buy property and then at some point owe that money back as tax and then don’t pay it back for a while as they await the capital gains to come rescue them?

    • A couple of years of financing through the ATO would be easy like this, but it is ultimately too expensive for anyone to do it deliberately, I’d have thought.

      • Probably wasn’t expensive while property prices were skyrocketing. Why does the government always close loopholes when it will maximally hurt the economy?

  2. “If this law were to expand then it will be a material blow to the property market as mortgage servicing measures suddenly crater for an entire class of ponzi borrowers.”

    But we know they would never allow this to happen – see ‘the past’.

    • Agreed. If there’s any substance to this ‘risk’ ScoMo will have this new law rescinded in no time 😉

      Nothing is more sacred than the ponzi – even ScoMo’s mate who lives in the clouds comes a distant second.

  3. This theory doesn’t make sense when the interest rates charged by the ATO (GIC) have a penalty component built into them, and hence are one of the more expensive ways you could borrow money. Current ATO GIC is at 7.98%, last year it was at 8.96%.

    Specufestor, and even standard business loans are cheaper. Anyone who leaves debt sitting with the ATO is going to go out of business fast.

    • all true – tell that to the builders. not sure if it because the banks are loathe to lend to pay off ATO debt or many of them still battling to get third party debt but … its a biggie. Add to that the QBCC (I suspect to the follow with other commissions in other states) and its a potent mix

    • Jumping jack flash

      Indeed!

      Also its interesting to know that ATO debt seems to be commonplace in small business, especially tradies it seems.

      • I assume it would apply to all entities. Most tradies are sole operators and not incorporated, so any tax debt is a personal liability in this scenario.
        If I incorporate, Pull the tax out and use it as a deposit then as a director I am still on the hook from a legal liability but its a last resort measure during bankruptcy and until then its the incorporated entity that owes the money.
        The directorship is the only link between me and the debt and it doesn’t come into play until the debt is pursued through bankruptcy.

  4. MB readerMEMBER

    I read the post and then I read the comments. The conclusions of each would suggest very different consequences. MB’s analysis of this issue should be reviewed.

  5. My thinking is that the measure is to stop rampant phoenixing mainly adopted by builder/developers. These unscrupulous operators pay their subcontractors but walk away from all tax debts including GST Payable on sales, Income tax instalments and PAYGW for any staff. By notifying lending bodies there is a chance their nefarious development activities will be curtailed.

    • I’d like to see a ban on being a company director for 2-5 years if a company has gone bust with. This would stop phoenixing.
      Also someone who is has run a company into the ground is either corrupt or incompetent and shouldn’t be running a company.

      • Not always that simple, sometimes things outside your control can kill you business and its not always due to incompetance.

        Also pheonixing is usually a deliberate act and not due to incompetence itself. I would say that corruption and fraud are better descriptions…

        If you want to stop pheonix activities make the builder who holds the license personally responsible for construction issues and not the corporate entity. Then the License holder can enforce a personal guarantee from the directors for it, tying the directors and licence holders together to the responsibility. There would be no benefit to pheonixing.

        In Canberra a company won a tender to widen a main thoroughfare along the lake. It wasn’t essential construction and by all accounts did nothing to relieve the congestion. 80% of the way through the project they bankrupted the company leaving all entitlements unpaid. Same day they created another entity with the same directors and approached the government for funding to take over the project. Stupid government gave in and handed over more cash.

        • Some good points – please keep in mind my 2 line post wasn’t meant to cover all possibilities