Albert Bushnell Hart: "Taxation is the price which civilized communities pay for the opportunity of remaining civilized."
Of life's two certainties, the only one for which you can get an automatic extension.
Court actions jump 54pc as ATO hunts down debts
Court actions against insolvent businesses and individuals have jumped 54 per cent in the past year, as the Australian Taxation Office tightens its lax approach towards outstanding debtsfrom the pandemic and steps up enforcement.
This increase puts court activity for debt collection back to pre-COVID-19 levels, according to CreditorWatch, at the same time as external administrations rise a “massive” 46 per cent in the year to July 31.
It follows the Tax Office warning that it would start chasing debts after offering businesses breathing space during the pandemic, as well as garnishees and director penalty notices.
Total debt owed to the ATO sat at $61.4 billionat the start of this year, with collectable debt reaching $39.9 billion, prompting the department to warn that it had resumed debt collection activities after “a general pause” during the lockdowns.
“I think the ATO have already been quite clear that they are back to business as usual approach,” CreditorWatch chief economist Anneke Thompson said.
“At the end of the day, you can’t have some businesses that aren’t paying debts and some that are ... so the ATO is slowly getting back to normal but not shocking people into reality.”
The uptick in activity reflected “quite a backlog” in debts that the ATO did not pursue during that relief period, she said, as well as businesses themselves chasing down those who had defaulted on payments they were owed.
Tightening lending conditions combining with depleted cash reserves as inflation bit also meant many businesses were defaulting on loans they had expected to be able to get financing to help repay.
New businesses hit hardest
“Obviously getting credit and debt now is a lot more difficult with interest rates rising, so there might be businesses that were relying on funding to repay some of their debts and they just can’t get it,” Ms Thompson said.
“This time last year when it was easier to get credit and cheaper they probably wouldn’t have been defaulting.”
Ms Thompson said it was newer businesses – especially the “mum and dad businesses” common to hospitality, which typically had high rent and low cash reserves – that would go under first.
“It will be small businesses that are fairly young that will be the first ones impacted because they tend to have less cash reserves, not as solid balance sheets, and are obviously reliant on capital to grow their business from the outset,” she said.
“So in the next year or so when there will be tough conditions, they’re obviously going to be the ones that feel it.”
More help needed for small business
The jump in court activity prompted calls for more support from both the government and banks for small businesses trying to stay afloat amid “accumulating debt” from inflation, supply chain woes, labour shortages and a COVID-19 hangover.
“Figures like this are really a sense check in what small businesses are experiencing in the real world,” CEO of the Council of Small Business Organisations Australia Alexi Boyd said.
“It’s become overwhelming from a mental health perspective because there are so many places where the debt is increasing, as opposed to a normal year when it may be in one area, such as freight.”
She said that although small businesses understood the ATO needed to crack down on debt, the Albanese government should offer more support where it could to ease cost pressures such as those caused by labour shortages.
She added that banks were viewing small business’ debts to the ATO “very unfavourably” as well, despite the fact it was “very easy to put in relatively cheap repayment debts with the ATO”.
“We’d like to see banks treat these ATO debts as manageable loans,” she said.
Food and beverage businesses were the most at risk of failing to repay debts, the CreditorWatch data revealed, with a 7.1 per cent probability of default. The arts and recreation industry followed with a 4.64 per cent probability, then the media and telco sector (4.59 per cent), and education and training (4.56 per cent).
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