TAX Debts, credit files, and the risk to your home loan

While the initial lockdown (at least in NSW) appeared to have a limited effect, especially with JobKeeper supplementing incomes, the 2021 lockdown appears to be having a much more pronounced effect on business cash flow, even with the NSW Government Grants.

We are anecdotally seeing some businesses use the current lockdown as an excuse to delay debts, in particular simple debts such as tax debts, utilities, business and other creditors that may have accumulated during the pandemic.

While it may be tempting to ‘let sleeping dogs lie’, there are several knock-on effects to leaving creditors aside, the main issue of which would be the impact on your credit record and future ability to get a loan.

A key recent example would be the changes to the ATO’s enforcement of tax debts. The ATO recently has made it known that it will likely place on the credit file of an entity and / or director business tax debt details where it:

– has an Australian business number (ABN), and is not an excluded entity

– has one or more tax debts, of which at least $100,000 is overdue by more than 90 days

– is not engaging with us to manage their tax debt

– doesn’t have an ongoing complaint about the proposed reporting of their entity’s tax debt information with the Inspector-General of Taxation Ombudsman.

An entity is excluded if it’s either, a:

– deductible gift recipient

– complying superannuation fund

– registered charity

– government entity

While the ATO will give you ample warning, including an ‘intent to disclose’ notice, other creditors will follow the standard route of default judgement with a view to getting such a judgement on your credit file.

With comprehensive credit reporting, we are finding that it can be quite difficult to remove a submission to a credit file at a later stage, even when you have already paid it. Usually the credit file is not considered until you apply for a loan and once uncovered, efforts are made to procure a removal of the judgement.

It is at this time that clients find it difficult to arrange the removal and that their plans, including a home purchase, can be delayed or in fact cancelled as they cannot obtain the loan.

Banks, in particular when it comes to tax debt, generally avoid or impose significant conditions to lending to clients with bad credit history or significantly question when adverse items appear on credit reports, leading to delays in processing an application.

As such, it is important to identify issues early and if you are considering in the near term purchasing a property or expanding your business, you should contact our office to review your credit report and plan ahead for any potential future purchases. Stephen, our broker, can assist in reviewing your credit history, identifying issues and getting you ready for your next step. Please contact our office on 02 9707 4470 for a free meeting and appraisal.

Stephen Nikolovski is an accredited broker and operates through Simaco Finance, the trading name of Direct Finance Solutions Pty Ltd.
Stephen George Nikolovski is a MFAA Approved Broker (number 386328) and is a credit representative (number 500383) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit License 391237).
Simaco Financial Advice is the trading name of Direct Financial Advice Pty Ltd which is the trustee of the Simaco Financial Advice Unit Trust ABN 91 753 408 234. This company and Stephen George Nikolovski are Authorised Representatives of Lifespan Financial Planning Pty Ltd ABN 23 065 921 735 Australian Financial Services Licence 229892.
Disclaimer: The above is merely general commentary and is not a statement of fact or assertion of expected outcomes.  It does not consider your personal circumstances.  Please consider whether any proposed credit contract and what structure of loan (e.g. fixed or variable etc.) is appropriate for you and read any relevant disclosure statements and/or speak to an appropriately qualified legal professional / seek financial advice before proceeding with any course of action.  If you wish to discuss your personal circumstances further, please again feel free to contact this office.
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