Insolvencies surge as ATO continues tax debt crackdown
The second half of 2024 saw a 47 per cent increase in total insolvencies compared to the same period the year prior, ASIC data reveals.
Insolvency rates increased across nearly all sectors of the economy in the final two quarters of 2024 as the ATO continues its stricter stance towards tax collection.
The leading sectors included construction, accommodation and food services, and ‘other services’. Some 1,827 construction companies entered external administration between July and December 2024, marking a 29 per cent increase on 2023.
The ATO stated in its 2023-24 annual report that it would continue its firm approach towards debt collection in the post-pandemic era and slow the growth of debt.
“Addressing collectable debt, which totalled $52.8 billion at 30 June 2024, remains a key priority in the ATO,” the report said.
“It is important we do our job to protect the Australian community and other creditors and ensure taxpayers do not obtain an unfair advantage over those who do the right thing.”
ASIC statistics indicate that the insolvency rate was 4,912 for the 2021-2022 financial year, low compared to historical averages. Now the ATO is returning to pre-pandemic tax collection levels, small businesses are feeling the pinch, and insolvencies are rising again.
Thomas Dawson, principal at Small Business Restructuring Specialists told The Accounting Times that he is seeing an up-tick in demand for restructuring, which can be partly attributed to 2021 legislation giving small businesses faster, cheaper methods to restructure its debts and avoid closure.
“The ATO are busy, therefore we're very busy, the busiest I've ever been in my life of working,” Dawson said.
“I've worked in consultancy in Australia for 25 years, and this is way busier than anything else I've seen. But it's not in liquidations, it's in restructures.”
He noted that we’re still seeing the flow-on effects from Covid, which marked an abnormal period for tax collection.
“I mean, you don't get to close down the whole country for periods of time, and don't think that there's going to be a knock on effect for small business,” he commented.
“We're only in the first 18 months of the collection work, in terms of the ATO collecting, of that period. So this has got years to play out, just to bring things back to normal.”
On top of ATO’s return to business-as-usual tax collection, the past few years have posed broader economic challenges for small businesses. Inflation continues to put upwards pressure on business expenses, while cost of living pressures drive down consumer demand.
“It just seems that small businesses have been hit by everything possible. COVID, price increases, labor costs,“ said Dawson.
In terms of future trends, Dawson told the Accounting Times, “My prediction is the ATO will carry on in the same way as they have in the last six months, and that all appointments will be 15,000 for this year.
“They've got $52.8 billion to collect. And that's been growing over time- again, because of COVID- but now they have to collect it.”
