Businesses to look to brokers as ATO prepares to disclose debtors  

After the ATO stated it would return to “business-as-usual debt collection” as of July 2023, it has issued notices of intent to disclose business tax debts to more than 22,000 businesses with a tax debt of at least $100,000 that is overdue by more than 90 days.

The Tax Office has now confirmed that it expects to disclose over 9,000 businesses to credit reporting agencies over the debts.

Furthermore, the ATO said it anticipates issuing more than 50,000 notices of intent this financial year with over $5 billion owed by businesses that currently meet the criteria for disclosure.

ATO assistant commissioner Jillian Kitto said paying or engaging with the Tax Office was the only way to stop a business’s tax debt from becoming visible in credit-rating checks.

Ms Kitto stated: “We want to work with businesses to help them get on top of their debts. Anyone with a debt is encouraged to reach out to us as soon as possible.

“We give businesses ample opportunity to re-engage with us. However, those who show continued and ongoing disregard for their tax and super obligations will have their debts disclosed.

“While we do not take disclosures lightly, consequences will apply to businesses who refuse to pay or engage with us.”

Referring to the shift back to the “business-as-usual debt collection”, Ms Kitto added: “Through the pandemic we shifted our focus from debt collection to stimulus payments and assistance with tax, but it is now time to re-establish the culture of paying tax on time.

“There is over $5 billion owed by businesses who currently meet the criteria for disclosure. We must draw a line in the sand to protect the Australian community and other creditors, and to ensure a level playing field for businesses who do the right thing.

“If you have an outstanding tax debt, we strongly urge you to pay it or reach out to us or your tax professional so we can provide the right support.”

In the RBA's Stability Review, which was released on Friday (6 October), it stated the increase in business insolvencies, up to over 9,000 based on monthly insolvencies for July and August 2023, was partly due to the ATO returning to business-as-usual debt collection.

The review said: "The increase in insolvencies has partly reflected the resumption of ATO enforcement activities on unpaid taxes following the end of the pandemic.

"This is likely to continue to prompt some businesses that are unable to pay their debts to commence formal insolvency procedures."

Furthermore, the RBA's review found "the construction industry have accounted for one-third of the increase in insolvencies of late, albeit this upswing has occurred from the very low levels recorded during the pandemic."

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

Mr Carter stated: “I haven’t seen an overly [large] increase yet, but I’m certainly expecting it. We haven’t had a massive influx of people because the ATO has announced it today but if the ATO has got the writing on the wall, and they’re going to start collecting on some of these longer term debts or larger debts then surely it’s going to be a conversation that we’ll need to assist clients with more and more.”

He added that, however, businesses can “get caught in the trap of putting a bandaid on a bigger issue by refinancing the tax debt”.

“Usually the tax debt is a symptom of something else not being managed well in the business’s cash flow,” he explained.

“So the first step would be [for a broker] to understand the business’s cash flow, then look at a solution where maybe you can, in the short-term, get rid of that tax debt, but certainly be working with your clients on addressing the core issues of that business rather than just the tax debt.”

He also advised brokers to look to spend time “upskilling themselves in terms of understanding businesses and their cash flow” so they can do more to help their SME business clients.

The Accendo Financial co-founder 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.”

[Related: ATO to crack down on SME debt]