More businesses facing collapse as tax office circles

According to insolvency firm Jirsch Sutherland, the tax office plays a large role in these collapses.

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

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

“A significant proportion of the amount that remains unpaid is GST collected from consumers or PAYG withholding deducted from employees’ wages,” ATO Commissioner Rob Hefferen said.

“We are seeing an increasing number of businesses falling behind on these types of payments, at which point it is very difficult for businesses to get back on track and remain viable.”

The ATO recently moved to what it called “tougher debt collection action” after stepping back from offering businesses financial support during the pandemic.

Spring said this approach has been echoed by other lenders.

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

“It places an even higher level of scrutiny on historical consistency when considering a restructuring proposal.

“Anecdotally, we hear this is also the case with pre-bankruptcy discussions about ATO payment plans.

“As an enforcement creditor, the ATO does not have the option to collect credit from a business – nor does it automatically know they are even in a trading relationship until the liability is self-reported.

“Therefore, great importance is required for compliance with reporting requirements to enable an effective and efficient tax system.

“Over the last few ‘pandemic years’ the ATO appears to have moved away from this position and for those who have suspended their accommodation activities, the hammer is about to come down.”