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Specialists say the worst is yet to come with two-thirds of pandemic debt still outstanding.
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ATO’s debt recovery campaign hits NSW hardest
28 February 2023
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The ATO’s debt recovery activity and economic headwinds have combined to hit NSW hardest with insolvency appointments up 62 per cent in the first half of 2022-23, Insolvency Australia says.
Director Gareth Gammon said a reinvigorated tax office resulted in NSW suffering almost as many insolvencies over six months, 2,153, as the entire previous year when there were 2,402.
“As the ATO came down harder on those with tax debt, it resulted in increasing external administrations,” said Mr Gammon.
“We started 2023 just as we finished 2022, with rising interest rates, surging cost of living, labour and materials shortages and the tax office continuing its tougher debt collection stance.”
Revive Financial’s head of business restructuring and insolvency Jarvis Archer said the ATO’s 80,000 warning letters to directors in early 2022 was just the start and this year it would increase debt recovery.
“The ATO seem to have again stepped up recovery efforts in 2023 with high levels of winding up filings and statutory demands popping up, sometimes also accompanied by a DPN,” said Mr Archer.
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“While the ATO’s efforts last year brought in $6-7 billion of payments or debts under arrangement, that’s only a third of the additional pandemic debt, leaving many businesses yet to deal with their tax debts.”
“The ATO’s escalating approach, together with ongoing staffing and supply chain issues and economic pressures, may create a perfect storm for many business owners who have battled for three years already.”
South Australian Clifton Hall partner Daniel Lopresti said smaller firms in the state had been in the front line of ATO activity.
“After taking a hiatus on debt collection during the pandemic, the ATO is increasing its debt recovery activities primarily through issuing director penalty notices and statutory demands for payment,” said Mr Lopresti.
“This has resulted in an increase in insolvency appointments, particularly in small-to-medium size enterprises, which make up the majority of business in South Australia.”
“Although it is difficult to predict, I anticipate that insolvency levels in 2024 will be above the long term average as the market catches up on the extended period of low insolvency rates during the pandemic and businesses continue to deal with increased costs and diminished access to funding due to higher interest rates.”
Stephen Hundy, a principal at Worrells, agreed and predicted corporate appointments would continue to increase.
“The numbers show a significant increase in corporate insolvency activity compared to the previous two years as businesses struggle with a number of post-COVID challenges including inflation, interest rate rises, supply chain issues and staff shortages,” said Mr Hundy.
“It is these factors, together with the ramping-up of collection activity by the ATO that have seen increases in all types of appointments.”
“I expect corporate appointments to continue to increase over the next six to 12 months and predict that appointment numbers will reach around 20 to 25 per cent above historical averages in late 2023, early 2024.”
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