Rising ATO Debt Hits Aussie Small Businesses Hard
Synopsis
An overwhelming spike in tax debt has brought Australia’s Small Business Debt Helpline to breaking point. And with the ATO currently on the hunt for a staggering $50 billion in unpaid taxes, calls for help have soared by 21 per cent in just one year. Small-business owners are overwhelmed with a median debt of $70,000 and aggressive new tactics that extract money directly from their bank accounts. And as the cost-of-living squeeze hits shops and customers, experts warn thousands of businesses are just one flexible payment plan away from going bust.
CANBERRA — Hundreds of thousands of Australian small business operators are in a cry for help as the tax office switches from “support mode” to aggressive debt collection. Small Business Debt Helpline For many clients, despite multiple seductions by the online high street, they are haunted by debts that they can just never repay.
New figures reveal the Australian Taxation Office (ATO) is chasing over $50 billion in unpaid tax, a record high. This also involves GST, super and withholding taxes that never made it to the tax office. The average debt for many owners is $70,000, a significant amount that has them in a perpetual state of financial insecurity.
Harder Measures: Personal Guarantee And Bank Direct Debit
It was more relaxed during the pandemic for businesses that were finding it hard to survive. That era is officially over. The tax office is now relying on “firmer” powers to make sure the community claims the cash it is entitled to Director Penalty Notices, the notices that hold business directors responsible for the tax debt of their companies, and can put a director’s home and personal savings on the line. Garnishee Notices, the ATO now has the power to extract money from a business bank account or take debtor money until the debt is paid. And Credit Reporting, unpaid tax debts that are being reported to credit agencies, which can make it impossible for a business to secure a loan or purchase equipment in the future.
These behaviours have led to a “crisis level” of requests for calls to hotlines. Financial counsellors say they are listening to business owners in tears, as energy bills climb and interest rates increase while back-taxes loom larger.
The “Interest Trap” Rendering Debts Unsustainable
Obviously, this one had to piss the owners off. At 10.5%, this interest accrues onto the debt every day, and is not just added to it but has its own interest also.
Tax Ombudsman Ruth Owen has warned that this interest “can be paralysing”. A person with a $20,000 debt who is making their best effort to repay it could see the total double in just a matter of months when interest is factored in. This sets up a kind of trap, in that the harder a business tries to pay, the more debt seems to proliferate. The Ombudsman is now looking at whether the ATO is being fair and evenhanded when it chooses to “wipe” some of this interest for people in genuine hardship.
A Call for Flexibility
Although the ATO claims the businesses that do pay on time are its priority “always work to be fair”, many believe they are out of step. Financial counsellors are reporting instances where the ATO won’t provide a payment plan unless the business can stump up with most of what is owed at the outset, something that many struggling shops do not have.
We suspect most business owners would rather do the right thing and pay their fair share. But after years of shocks, from COVID-19 to natural disasters and the current cost-of-living squeeze, their “financial buffers are gone.” Advocates say the tax office should assess individual circumstances, granting more time and with lower interest rates to avoid a wave of unnecessary business failures.
Key Highlights
- Calls to the Small Business Debt Helpline were up 21 per cent and a new analysis showed that businesses entering administration in the second half of the year had an average of $70,000 worth of debt.
- The ATO is chasing unpaid $50 billion in unpaid tax money and using “garnishee” powers to take cash straight out of bank accounts.
- With 10.5 per cent interest charges debts are rapidly getting out of hand for those who are attempting to pay them off.
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At Inspirepreneurs Magazine, covering entrepreneurship, business failures, and the human stories behind the world's most ambitious founders. She writes at the intersection of strategy and storytelling.
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