3 hours Ago By Varun Godinho
A crackdown by the Australian Taxation Office on unpaid tax coupled with a deterioration in the overall state of the economy is pushing an increasing number of businesses towards closures. Corporate insolvencies are at fresh highs as the ATO has ramped up debt recovery action. In March, reports indicated that the tax office was chasing more than $34 billion worth of debts owed by small businesses and self-employed Australians that were put on hold during the Covid-19 pandemic.
Some of its enforcement action includes the agency reporting thousands of small businesses with debts to credit reporting agencies, issuing garnishee notices, which could result in money being taken directly out of a business owner’s bank account, and the initiation of wind-up applications. In the September quarter, there were 3631 insolvency appointments, a 45.5 per cent increase from the same period in 2023, and 10 per cent more than the June period, according to figures from the Australian Securities & Investments Commission.
This September quarter had the highest rate of external administration and controller appointments since ASIC records began in the late 1990s, surpassing the previous high in 2012 when 2961 businesses collapsed following the global financial crisis, reported The Australian. The sector most impacted by corporate insolvencies in the quarter was construction whose appointments was up 13 per cent to 898. As Michele Bullock, the governor of the Reserve Bank of Australia (RBA) recentlypointed out, construction costs have increased about 25 per cent since the pandemic.
She said the shortage of tradespeople had been compounded by financial concerns at construction firms, who signed fixed-price contracts and were now finding projects unprofitable to complete. The other sector that insolvencies have hit was the accommodation and food services, where insolvency appointments grew at a faster rate of 109 per cent from 339 to 709 in the quarter. Retail trade appointments climbed 13 per cent to 204.
Between May and September, the number of businesses with outstanding tax debts of more than $100,000 was reaching 29,000, according to the ATO. For the 2024 financial year, the ATO took 80,050 strong recovery measures compared to 25,744 in 2023. “As a result of the poor trading conditions for small business, the proportion of small business ATO debt is continuing to grow.
Small businesses owed $35.2bn to the ATO at the end of the 2024 financial year,” said business reset restructuring practitioner Jarvis Archer. “Over 40 per cent of this debt is six to 24 months old, demonstrating the difficult conditions for small businesses, particularly in construction and hospitality.
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