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Insolvency professionals warn the Tax Office is using DPNs and legal action to take a “far more aggressive” recovery stance.
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ATO ‘hell bent’ on chasing down $34bn in small business debts
21 June 2024
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The ATO is “hell bent” on chasing down $34 billion worth of debts owed by small businesses using director penalty notices (DPNs) and legal action, insolvency professionals say.
Insolvency Australia (IA) members said that recent activity showed the ATO was not only coming good on its promise to end its pandemic-era leniency but that it was taking a "far more aggressive" approach.
“The ATO is hell bent on collecting what it’s owed and is really doubling down on compliance,” director Gareth Gammon said.
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The ATO had singled out collectable debt, small business tax performance and superannuation guarantee as its key focus areas in FY24.
Remissions on interest charges and penalties would become the exception rather than the rule and “there will be exits”, warned deputy commissioner Vivek Chaudhary in September last year.
Small businesses in particular have been targeted for owing 65 per cent of the $50 billion in the ATO’s collectable debt book.
IA said that debt crackdowns by the ATO, as well as from the big four banks, caused court wind-ups of businesses to surge by 133 per cent in the first half of the financial year.
Its Corporate Insolvency Index found voluntary administration numbers were up 14 per cent and controller appointments jumped 34 per cent, bringing total appointments to 4,531, a 24 per cent increase over the same period in FY23.
IA member Josh Taylor said the increased debt collection activities meant small businesses would look to their accountant for guidance.
“The ATO is being far more aggressive in its debt collection. It’s now issuing even more DPNs, both before and after liquidations,” Taylor said.
“That’s why it’s important for accountants to always follow up clients to ensure business activity statements are lodged on time or within three months of their due date.”
IA member and Jirsch Sutherland partner Chris Baskerville urged indebted businesses to come clean and “report your sins – even if you can’t pay for them”.
“That means lodge your tax returns on time,” he said. “Statutory bodies will give you no leeway if they have no oversight of the state of your business.”
Paying employee benefits should also be a priority for businesses looking to stay in the ATO's good books, he said.
“One of the first things the ATO will ask when a business gets into trouble is whether they have paid employee benefits such as superannuation, so it’s wise to ensure these payments are up to date.”
Accountants could also help clients use the small business restructuring scheme, he said, with its potential to save businesses $700,000 to $800,000 in debts.
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