ATO chases small businesses for $34b in debt, insolvencies tipped to hit post GFC levels

The tax office is chasing more than $34 billion worth of debts owed by small businesses and self-employed Australians that were put on hold during COVID, and sometimes using aggressive enforcement action to collect the money, which experts say is sending some businesses to the wall.

While the ATO is not the main creditor in winding up applications in court, experts say the agency is taking far stronger debt recovery action against some businesses that are yet to turn a corner, and The ATO defines small businesses as being sole traders, companies, trusts or partnerships that operate a business for all or part of the income year and have less than $10 million of aggregated turnover. This includes micro and self-employed businesses, and can include those operating in the gig economy.

Jarvis Archer says small businesses are restructuring to avoid the ATO winding them up, and both insolvencies and liquidations have spiked this year.More aggressive debt recovery action by the ATO, as well as a slowing economy under higher interest rates, he says, are factors why the rate of company insolvencies in the past four months is tracking 36 per cent higher than last year and 25 per cent higher than pre-COVID levels.

It's using all of its debt recovery tools, Mr Archer says, including issuing director penalty notices which give a company director 21 days to voluntarily enter into an insolvency appointment, otherwise they become personally liable for their company's debt. Andrew Wilkie does not think the ATO is being 'sensible' in some cases of debt recovery against small business.The 'damaging' personal toll on company directors

Mr Archer says this business owner received a director penalty notice giving him 21 days to respond. But because the owner was awaiting an insurance payout, he couldn't rebuild his business within the 21-day window and was wound up.

"Unfortunately sometimes it does take for a director or a taxpayer to sit up and say, ‘I actually have a problem, and I'd like to do something about it’." Ms Conneely also forecasts an uptick in liquidation activity this year, both because of ATO winding up action as well as general creditors taking action for non-payment of debt.

Source: Loan Digest (loandigest.net)

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