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Thousands of Australian private businesses have become insolvent over the past 12 months after failing to fulfil ATO tax debts, credit agency data reveals.
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Defaults on tax debts a major driver for business insolvencies, data reveals
15 January 2025
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7 minute read
CreditorWatch analysis of ATO tax debt defaults has revealed that 33.6 per cent of private businesses have collapsed over the last year after failing to address significant tax debts.
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The research found that 1,715 out of 5,097 businesses with outstanding tax debts that exceeded $100,000 had become insolvent or had voluntarily closed.
CreditorWatch attributed this to the ATO’s lenient debt enforcement approach during the pandemic, which had significantly surged with the ATO being owed $52 billion in outstanding tax liabilities.
According to the data, $34 billion of this amount was owed by small businesses put under pressure when the ATO significantly intensified its debt recovery efforts after the pandemic.
The Tax Office had taken a stricter stance towards collecting tax debts by employing measures such as disclosing business tax debts to credit reporting bureaus, issuing garnishee orders and serving director penalty notices.
CreditorWatch CEO Patrick Coghlan said he supported the ATO’s stricter stance and it was important to hold businesses accountable for their tax obligations.
“The ATO is simply trying to collect the tax that all companies are obliged to pay. While I sympathise with businesses grappling with such large debts, it’s crucial that businesses abide by these obligations,” he said.
The ATO adopted a stricter stance towards collecting tax debts in April 2022, disclosing business tax debts to credit reporting bureaus under the condition the debt exceeded $100,000 and 90 days overdue.
The Tax Office would also report businesses if they had failed to respond to two outreach attempts or a notice of disclosure.
CreditorWatch revealed that under the ATO’s guidance, credit reporting bureaus including CreditorWatch had to remove records of tax debts once the business engaged with the ATO, either by paying the outstanding debt or entering a payment plan.
CreditorWatch also noted that as of 30 November 2024, it maintained records on 28,700 tax debt defaults, with 18,319 of those being private companies.
The food and beverage services sector had the highest tax default rates, followed by construction and transport, postal and warehouse industries.
However, the electricity, gas, water and waste services sector had experienced the highest insolvency rate, with 40 per cent of businesses having noted that tax debts had led to collapse.
Coghlan said repaying such substantial debt would continue to be a formidable challenge based on varying factors.
“A tax debt of $100,000 or more is a substantial burden, especially for SMEs, which represent the majority of businesses with tax debt defaults and can seem overwhelming,” he said.
“The combination of challenging economic conditions, rising operational costs and declining retail per capita has left many businesses struggling to manage large tax debts.”
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