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ATO reporting of overdue tax debt and impact on your ability

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How Equifax’s agreement with the ATO might affect your ability to be approved for a home loan

In late April 2022, credit reporting body, Equifax entered into an agreement with the Australian Taxation Office (ATO) to enable it to receive commercial tax default data. Equifax intends to use this information on its commercial credit reports.

Under the terms of the agreement, the ATO will now have the power to disclose business tax debt information to Equifax, including data that relates to sole traders.

This type of information has not previously been available and will provide lenders with a clearer picture of the potential borrower’s risk and allow the lender to evaluate their position more carefully.

How will lenders end up with the data?

Each week the ATO will provide Equifax with an update on any businesses that:

  • operate with an Australian Business Number (ABN) and are not an excluded entity;
  • are in arrears to the ATO in an amount of at least $100,000 and by more than 90 days; and
  • are not currently attempting to manage their tax debt with the ATO.

Commercial risk reports provided to lenders will now highlight this data and payment defaults will be reflected in commercial risk scores. Scores may be reassessed once a business engages with the ATO and enters into a payment plan if the ATO request Equifax deletes the data and no longer displays it on their reports.

How can this affect your ability to get a home loan?

A large and overdue tax debt like those that the ATO will be disclosing to Equifax are a red flag to lenders. Not only is the amount and length of the arrears an issue, but the disclosure also indicates to the lender the borrower’s unwillingness to engage with the ATO to manage their tax bill, which presents an overall credit risk. This could damage an individual’s chances of being approved for a home loan.

If the debt is a one-off due to extenuating circumstances, such as the pandemic, then most lenders are willing to work with business owners who are in arrears with the ATO. However, people with undisclosed tax liabilities are encouraged to speak with their broker or credit provider to gauge their ability to be approved for a home loan. Some individuals may find they have a lower credit score and will therefore need to seek a lender who does not place as much of an emphasis on credit scores and is willing to accept that the borrower will need to enter into a payment plan with the ATO.

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