ATO debt forcing more businesses into liquidation or restructuring with no sign of slowing in FY25

Tax debt has weighed heavily on small businesses in the past 12 months, driving record levels of insolvency. Read what companies must do now to prevent becoming a statistic

Kathleen SkeneBusiness editor

2 min read

June 24, 2024 - 6:00AM

Gold Coast Bulletin

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Businesses have been warned to get their houses in order with an ATO crackdown on post-Covid debt expected to intensify in the new financial year.

The tax office and big banks are driving a record increase in wind-up court actions, chasing down debts delayed during the pandemic.

The number of companies appointing restructuring practitioners as they grapple with hefty tax debts has quadrupled in the past year, with the move allowing some to shave hundreds of thousands of dollars off their bill.

Restructuring practitioners can only be appointed to companies whose directors decide are insolvent, or likely to become insolvent at a future time. The move is only allowed for companies with debts under $1 million.

Among the high-profile local companies taking advantage of the restructuring plans are four top Gold Coast nightclubs operated by Artesian Hospitality Group, which will only have to pay $475,000 of a $2.2m tax debt after appointing a practitioner in January.

The company behind Surfers Pavilion had to restructure due to tax debt. Pic: Mike Batterham

Creditors of a struggling Gold Coast fashion brand Outland Denim were offered a fifth of what they’re owed after that company appointed a restructuring practitioner in March.

It was unable to meet $522,933 in debts and offered $104,587 as consolation.

The ATO has also figured as a major creditor in numerous other Gold Coast insolvencies, including The Henchman Miami, Dirty Grill Coffee Bar, which previously operated Pretty Handsome cafe, Black Hops Brewing and Espresso Moto.

Gareth Gammon, director of Insolvency Australia, said small business owners should use the end of the financial year to get on top of their finances.

“The ATO is hellbent on collecting what it’s owed and is really doubling down on compliance,” he said.

“Last month there were record high insolvencies, tracking more than 50 per cent above pre-pandemic levels.

“That’s why EOFY is ideal to assess the state of your tax situation, collect outstanding customer payments, and give your business a ‘health check’ to determine how it’s going.”

Insolvency Australia Director Gareth Gammon. Picture: Supplied

Jirsch Sutherland Partner and insolvency expert Chris Baskerville. Picture: Supplied

Jirsch Sutherland partner Chris Baskerville said businesses should be “reporting your sins – even if you can’t pay for them”.

“That means lodge your tax returns on time – otherwise, statutory bodies will give you no leeway if they have no oversight of the state of your business,” 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.”

Mr Baskerville said one of the best things people can do to prepare for the new financial year is to create a 12-month cashflow forecast to determine what their business will look like for the next year.

“Businesses naturally have ebbs and flows of income and expenses, so the trick is to save when the money is flowing in, so you have the funds available for slower months when there is less income and more expenses.”