Tax Office Issues Warning to 22,000 Businesses to Pay Overdue Debts

The exterior of the Australian Government Taxation Office in Sydney, Australia, on May 28, 2012. (AAP Image/April Fonti)

The Australian Taxation Office (ATO) has warned more than 22,000 businesses to pay their obligations or else be reported to credit rating agencies, a move that can impact the capacity of businesses to secure finances and suppliers.

As the taxation office resumed the collection of debt following a period of stimulus payments and tax assistance during the COVID-19 pandemic, it said that it has issued notices of intent to disclose business tax debts of more than 22,000 businesses with a tax debt of at least $100,000 (US$63,800) overdue by more than 90 days.

Cumulatively, these businesses owe the ATO a total of over $5 billion.

The ATO is expecting to disclose the debts of more than 90,000 businesses this month and is slated to release more than 50,000 notices of intent in the 2023–24 financial year.

“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,” said ATO Assistant Commissioner Jillian Kitto.

“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

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Ms. Kitto said that businesses with unpaid obligations must reach out to the ATO as soon as possible as the government seeks to help these entities get on top of their debts.

Businesses must pay their debts or enter into an appropriate payment arrangement within 28 days of the issuance of the intent to disclose.

“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,” said Ms. Kitto.

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

Inflation Puts Pressure on Businesses

In its Financial Stability Review published this month, the Reserve Bank of Australia (RBA) said that inflationary pressures and lower consumer demand have weighed down the profitability and liquidity of some businesses.

“Company insolvencies have increased from the very low levels seen during the COVID-19 pandemic, but as these companies have tended to be small and have little debt, risks to banks and the broader financial system remain low,” the central bank said, noting that insolvencies in the construction sector accounted for one-third of the rise in insolvencies.

“Insolvencies of larger businesses are more likely to transmit stress to households and other businesses, as they have more employees, larger debts, and more interlinkages with other businesses via trade credit.”

The RBA said that while operating profit margins as of March 2023 are around their pre-pandemic levels in most industries outside the mining sector, profit margins of businesses have started to decline slightly in the accommodation and food industry.

In addition, higher interest rates directly affected interest expenses, especially of smaller businesses as many have variable rate loans.

The RBA decided to keep Australia’s official cash rate at 4.1 percent, noting that inflation in the Australia is still too high but has passed its peak.