1/3 of businesses collapsed from ATO debt

According to the latest CreditorWatch data on Australian Tax Office (ATO) tax debt defaults, just over one-third (33.6 per cent) of private businesses with ATO tax debt exceeding $100,000 and 90 days overdue have either become insolvent or voluntarily closed over the past 12 months.

This has equated to 1,715 out of 5,097 businesses closing their doors in the past year.

A surge of outstanding tax liabilities emerged as a result of the ATO’s leniency during the pandemic in regard to debt enforcement, which now totals around $52 billion, with small- to medium-sized enterprises (SMEs) owing $34 billion of this amount.

In response to this surge, the ATO has since drastically intensified its debt recovery efforts post-COVID-19, using methods such as disclosing business tax debts to credit reporting bureaus, issuing garnishee orders, and serving director penalty notices.

Patrick Coghlan, CEO of CreditorWatch, noted the importance of holding businesses accountable for tax obligations and supported the ATO’s more stringent stance.

“The ATO is simply trying to collect the tax that all companies are obliged to pay,” Coghlan said.

“While I sympathise with businesses grappling with such large debts, it’s crucial that businesses abide by these obligations.

“A tax debt of $100,000 or more is a substantial burden, especially for SMEs, which represent the majority of businesses with tax debt defaults and can seem overwhelming. Entering into a payment plan with the ATO is an important and necessary first step in resolving these issues.”

According to CreditorWatch, the combination of economic headwinds, rising operational costs, and dwindling retail trade per capita has left many businesses struggling to manage their substantial tax debts.

Repaying debts exceeding $100,000 presents a formidable challenge even in times of economic stability.

The differing failure rates across industries may also indicate the stage each sector is at in its economic decline.

For example, industries such as information, media, and telecommunications have been dealing with disruption for years due to the rise of digital media.

In contrast, the education sector, which currently has a failure rate of only 10 per cent among businesses with tax defaults, could encounter increasing difficulties as new caps on international students are implemented next year.

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Adrian Suljanovic is a journalist at Broker Daily with more than two years experience reporting on all facets of the third party distribution channel.

Adrian has written for a range of business and finance titles including IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

E-mail Adrian at: This email address is being protected from spambots. You need JavaScript enabled to view it.