Australian businesses are going to keep falling into dire financial trouble at a record rate, in large part due to overdue tax debts.
So far this year, more than 10,000 businesses have appointed external administrators – already higher than the total of about 9500 for the 2022-23 financial year, and far higher than the roughly 6100 for 2021-22.

According to insolvency firm Jirsch Sutherland, the tax office is playing a big role in those collapses.

A closed sign on a shopfront.
Australian business collapses asre at a record high, and there’s no sign of them slowing down anytime soon. (Dion Georgopoulos/SMH)

”Since the start of the calendar year we have experienced a noticeable uptick in small business restructuring plans and voluntary administrations to resuscitate or restructure businesses across a wide range of industries,” Jirsch Sutherland partner Andrew Spring said.

“Tax debt is the primary reason but higher operating costs are also pushing businesses to or over the edge.”

“A significant portion of the amount going unpaid is GST collected from consumers or PAYG withholding, withheld from employees’ pay,” ATO Commissioner Rob Heferen said.

“We are seeing an increasing number of businesses fall behind on these types of payments, from which point it is very difficult for businesses to get back on top of their obligations and remain viable.”

People walking out of the ATO Office.
The tax office says small businesses owe it around $33 billion. (AFR/ Luis Enrique Ascui)

The ATO last moved to what it called “firmer debt collection actions” after pulling back to offer businesses financial support during the pandemic.

Spring said that approach has been mirrored by other creditors, too.

“The creditor community is becoming less tolerant to operational behaviours that may have contributed to a business’s financial distress, and the ATO is again at the forefront of this changing creditor position,” he said.

“It’s placing an even higher level of scrutiny on historical compliance when considering a proposal for restructuring.

Federal budget newspaper front pages 2024

In pictures: The federal budget newspaper front pages

“Anecdotally, we’re hearing this is also the case with pre-insolvency discussions regarding ATO payment plans.

“As an involuntary creditor, the ATO doesn’t have the option to withdraw credit from a business – nor does it automatically know they’re even in a trading relationship until the liability is self-reported.

“As such, a high importance on reporting compliance is required to allow an effective and efficient tax system.

“During the last few ‘pandemic years’ the ATO appeared to move away from this position, and for those that have become delinquent with their lodgement activity, the hammer is about to drop.”



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