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ATO debt pushing more businesses ‘over the edge’

More businesses are being driven to rescue programs as the ATO claws back $50 billion of tax debt and operating costs rise.

More Aussie businesses are being driven to the brink of collapse, as the Australian Taxation Office (ATO) tightens the screws on outstanding debts. And there’s more pain to come.

More than 10,000 companies are expected to enter external administration by the end of the current financial year, ASIC predicts. That would mark a level not seen in more than a decade.

Insolvency firm Jirsch Sutherland said it had seen a “noticeable uptick” in businesses being driven to rescue programs like small business restructuring and voluntary administrations across a wide-range of industries.

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Businesses and insolvencies
More Aussie businesses are facing collapse, largely due to overdue tax debts. (Source: Getty/Supplied)

“Tax debt is the primary reason but higher operating costs are also pushing businesses to or over the edge,” Jirsch Sutherland partner Andrew Spring said.


The ATO is currently working through more than $50 billion in outstanding tax debt, including more than two-thirds that is owed by small businesses. A large amount of the amount going unpaid is GST collected from consumers or PAYG withheld from employees’ pay that hasn’t been handed to the tax office.

The ATO returned to “firmer debt collection actions” towards the end of last year, after giving taxpayers some breathing room during the pandemic.


Spring said the creditor community was becoming “less tolerant to operational behaviours that may have contributed to a business’s financial distress” and noted the ATO was at the forefront of this shift.

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

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

Spring warned the “hammer is about to drop” for businesses that had fallen behind on their statutory compliance and urged businesses to “act now”.

The Alares Monthly Credit Risk Insights report found insolvencies remained 50 per cent above pre-pandemic levels in April, "reinforcing the long anticipated catch up in insolvencies from pandemic lows".

Localsearch chairman Daniel Stoten said he had heard from tens of thousands of small business clients who were facing higher business costs.

“From increasing utility bills, insurances, overheads, and fuel and labour costs, it’s undeniably an extremely stressful period for SMBs around Australia,” Stoten said.

The federal budget included some measures for small businesses, including an extension of the $20,000 instant asset write-off scheme for another year and a $325 energy bill rebate for around one million small businesses.

Stoten said the “reality” was businesses needed to have money to purchase assets in the first place to benefit from the tax break. Meanwhile, he noted that the energy rebate would only support roughly 38 per cent of the country’s 2.6 million small businesses.

The Council of Small Business Organisations Australia called the budget a “lost opportunity”, as falling sales revenue and rising costs put a major strain on the profitability of small businesses.

It had been calling for eligibility for the instant asset write-off scheme to be broadened to businesses with a turnover of up to $50 million, up from the current $10 million.

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