The amount of tax debt owed by Australian taxpayers has doubled in just over 4 years!
At the end of 2019, before the impact of COVID-19, the national tax bill was around $26 billion. As recorded at the end of 2023, that figure has jumped to over $56 billion in outstanding tax debt owed to the ATO.
Perhaps not surprisingly, the largest percentage of the overall tax debt is attributed to small business, with over 65%, or around $34 billion owed. This “small business” debt includes payments owed by sole traders, trust, partnerships and companies with turnover less than $10 million.
Why the Huge Increase in Tax Debt?
During the pandemic, and in the recovery period that followed, the ATO relaxed its enforcement of some lodgement and payment obligations for small businesses, as they fought to battle the tough economic climate. While a welcome relief at the time, this leniency is a major contributing factor to the considerable increase in the amount of current tax debt. As a delayed consequence, a couple of years down the track, the ATO is now tightening the screws. There is increasing pressure being applied to small businesses in an attempt to recover the substantial amount of unpaid taxes and bring tax debt figures back down closer to pre-pandemic levels.
Old Tax Debt for Individuals on the Hit List Too
In addition to ramping up efforts when it comes to the collection of small business tax debt, the ATO is also currently reviving old tax debts for many individuals.
Late in 2023 the ATO issued notices to thousands of Australia tax payers in regards to historical tax debts that it was requesting to be settled. In some cases the amounts were as small as a few cents. For others, the debts dated back as far as 2010 and were once deemed “uneconomical to pursue” by the ATO, causing those involved to believe that the debt had been written off and they were no longer liable. It seems that is no longer the case, as the ATO have overturned their initial stance on the debts. And there are many other differing scenarios that have arisen.
What can I Do if I Have Personal or Business Tax Debt?
Firstly, if you or your business currently has a debt with the ATO and you have not recently communicated with them to discuss a resolution or negotiate a repayment plan, we would strongly recommend taking action to do so sooner rather than later, before the ATO contacts you.
If you have already received a notice from the ATO regarding the recovery of your outstanding tax debt, it is equally as important to seek professional advice regarding your options.
A “head-in-the-sand” approach will definitely not solve any of your tax debt problems. Failing to take any steps to attempt to meet your tax obligations can have considerable consequences, from bankruptcy to insolvency and having to wind-up your business.
The team of tax accountants and tax lawyers at The Quinn Group have considerable experience liaising with the ATO to find workable solutions for settling tax debt. Contact us by calling (02) 9223 9166 or submit an online enquiry now to make an appointment to discuss your individual ATO tax debt situation.
How will the ATO Target Small Business Tax Debt?
The ATO uses “targeted strategies” and “data-driven insights” to identify businesses that are required to address their outstanding small business tax debts.
One such strategy is the issuing of DPNs (Director Penalty Notices) to company directors of businesses that ATO is seeking to recover debt from. At the end of 2023, the ATO were issuing around 60 DPNs per day!
You can find out more about DPNs by reading our recent article Director Penalty Notices: Personal Liability for Company Debts.
The ATO is also taking action by issuing garnishee notices, which can result in funds being directly recovered from taxpayers bank accounts.
There has also been a considerable increase in the ATO taking steps to initiate winding up businesses that fail to resolve their tax debt obligations.
Tax Debt Recovery Activity to Result in More Insolvencies
As businesses feel the pressure of mounting tax debt and other liabilities, the rate of company insolvencies has increased by 36% for the 2023-2024 financial year, when compared to the previous financial year period. In a return to pre-covid levels of activity, the ATO filed to the courts for approximately 130 companies to be wound up in February 2024. If things continue in this way, we could expect to see the highest levels of insolvency since just after the global financial crisis in 2008.
Tax Debt Can Affect More than Your ATO Ledger
In light of the ATO’s increased focus on small business debt, it is important to remember that an agreement made between credit reporting agency, Equifax, and the Australian Tax Office (ATO) in 2022, may result in your business tax debt being made available on your business’ commercial credit report.
If you have a current business tax debt with the ATO (that meets the defined criteria), then this information being made available on your credit reports could have a significant impact when it comes to borrowing and seeking financial support or investment.
Read Your ATO Business Tax Debt could Impact Your Credit Rating to find out more about the changes and relevant criteria.
Have Personal or Business Tax Debt? Do Something!
It is not unexpected that many businesses and individuals may have accrued some kind of tax debt, particularly over the last 4 – 5 years. The worst thing that you can do is to stick your head in the sand and hope that it will all just go away. It won’t. The ATO will catch up with you eventually and the emotional and physical costs will likely be so much greater the longer the problem is left to accumulate.
The best thing that you can do is to take a proactive approach. It likely won’t be resolved overnight, but taking small and productive steps in the right direction can help you to get your personal or business tax debt back on track.
The team of tax accountants and tax lawyers at The Quinn Group have considerable experience liaising with the ATO to find workable solutions for settling tax debt. Contact us by calling (02) 9223 9166 or submit an online enquiry now to make an appointment to discuss your individual tax debt situation.
Sources:
ATO Chases Small Business Debts
ATO Reignites Old Tax Debts
