ATO chasing more than $39bn in debt from SMEs

Speaking on the regulators panel at the Council of Small Business Australia National Small Business Summit 2024 in Sydney on Thursday (4 April), Heferen outlined that while the ATO had “returned to normal debt collection across all markets” in December last year, the amount of collectable debt (which he said was “ultimately tax and super that has gone unpaid by taxpayers”) is now at over $50 billion.

Of this, 65 per cent (or $39 billion) relates to small businesses and 74 per cent of that relates to activity statements.

“This means a significant portion of the amount going unpaid is GST collected from consumers or PAYG withholding, withheld from [employees’] pay,” he told delegates.

“We are seeing an increasing number of businesses fall behind on these types of payments, from which point it is very difficult for businesses to get back on top of their obligations and remain viable.

“It’s critical that all employers – big and small – keep on top of their obligations to their employees first and foremost, as well as their obligations to government in respect to GST, income tax, and other taxes.”

Heferen said that while many small businesses are concerned about “the unfair competitive advantage businesses not complying with ATO obligations are getting over those who are doing the right thing”, he added that there was “also a significant risk of businesses trading while insolvent and creating a situation where all creditors – including suppliers and employees miss out on what they are owed”.

“Ensuring taxpayers pay their tax and super obligations is a key focus for us,” he said.

Given the volume of SMEs needing to pay off ATO debt, many are turning to brokers for pay-out finance.

Speaking to The Adviser last year, finance broker and co-founder of Accendo Financial, Trent Carter, said he expected a further increase in SME business clients looking to speak to their finance broker to help meet their ATO debts.

He added that as many banks would likely not lend for tax-debt purposes, brokers will need to look to “cash flow lenders, or specialised business lenders, who will look at paying off that tax debt, getting it restructured and then being able to work with your clients overly to maybe get them on a more sustainable funding solution.”

Indeed, several non-banks have already seen a spike in inquiries for funding requests to clear tax debts.

Steve Wallace, regional sales manager at Resimac, commented: “Our appetite for self-employed customers varies from the banks…

“We’re able to clear out ATO tax debts, which can be a significant burden lifted off the shoulders of business owners.

“The ability to consider a self-employed client’s requirements across a broader spectrum of products continues to be a key benefit to brokers working with lenders in the non-bank sector.”

RedZed’s head of distribution and product Adrian Fisher similarly told The Adviser that the lender had seen an uptick in flows from SMEs seeking to clear tax debt in the financial year 2024, stating: “Debt disclosure can adversely impact borrowing capacity, supplier retention and the ability to open trade accounts, so it wasn’t surprising that we saw an influx of business owners seeking tax debt funding solutions in order to meet the requirements of the ATO and avoid debt disclosure.”

Pepper Money’s general manager mortgages and commercial Barry Saoud added: “The ATO is following through with its intention to crack down on the 40,000 businesses that have collectable debt, creating more pressure on businesses. Pepper Money also recognises there are ways non-bank lenders can assist in consolidating tax or general debt.

“We see a massive opportunity to help those who are mainly self-employed and their families get into homes, and consolidate any tax or general debt by having better deals by allowing alternative documentation.”

[Related: SME loan applications surge in 1Q24: Banjo]