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Do unpaid taxes affect your credit score?

Do unpaid taxes affect your credit score?

Your credit score can be affected by many different factors, including outstanding debt sand credit limits. It’s understandable to be worried about whether an overdue tax debt could affect your ability to borrow in the future.

The good news is that your unpaid personal taxes should not affect your credit score in most cases, though unpaid business taxes may be another story.

What happens if you owe a tax debt?

According to the Australian Taxation Office (ATO), if you have an outstanding personal tax debt for too long, the ATO will attempt to contact you about it. If they’re unable to do so, they may engage debt collectors to handle the job.

Some businesses and financial institutions will inform credit bureaus once they call in debt collectors, which can affect your credit score. However, the ATO specifically states that “referral to an external debt collection agency does not affect your credit rating.”

What about unpaid business taxes? 

New laws passed by Australia’s federal government in 2019 mean that the tax office will be able to disclose business tax debts to credit reporting bureaus (CRBs).

According to the ATO, the tax debt information of a business will only be disclosed to a CRB if the business meets all of the following criteria:

  • it has an Australian business number (ABN), and is not an excluded entity
  • it has one or more tax debts, of which at least $100,000 is overdue by more than 90 days
  • it is not effectively engaging with the ATO to manage its tax debt, and
  • the Inspector-General of Taxation and Taxation Ombudsman is not considering an ongoing complaint about the proposed reporting of the entity's tax debt information.

This could potentially become an issue for small business owners, entrepreneurs, sole traders and the like, whose business tax debts could risk affecting their personal credit scores. This could make it harder to successfully apply for a personal credit card or car loan (for example) if your business owes money to the tax office.  

How to get tax help

Because Australia’s tax laws are regularly updated, if you have any questions or concerns about whether your personal or business debts could end up affecting your credit score, it’s best to contact the ATO directly.

You could also contact a finance professional such as a tax accountant or financial adviser for more personal advice on the best steps to you to take to help look after your unpaid taxes and keep your credit score healthy.

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.



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