Rising ATO Debt Collection Puts Strain on Struggling Businesses in Post-Pandemic Era

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As the COVID-19 pandemic dust begins to settle, businesses grapple with a novel challenge: the rise of mounting debts coinciding with the reduction of government support.

The Australian Taxation Office (ATO), in particular, has emerged as a formidable creditor, posing a significant threat to cash-strapped small and medium-sized enterprises (SMEs).

Insolvency Australia, an industry group, recently released its Corporate Insolvency Index, highlighting the severity of the issue. The report disclosed a significant 57% spike in administration appointments nationwide in Q4 of the 2022-23 fiscal year, primarily due to the ATO’s aggressive debt collection drive.

“They are either in the form of so-called ‘zombie’ companies that have ceased to operate but not addressed their winding up,” Insolvency Australia member and Partner at PKF, Petr Vrsecky, said.

Barretts Bakery, a prominent West Australian business with a history dating back to 1998, is a cautionary tale. The bakery was placed into administration after accruing a $2 million debt to the ATO.

The pandemic led to businesses depending on government aid and relief measures, postponing the resolution of fundamental financial concerns. Programs like JobKeeper acted as a lifeline but created what experts call an “addiction to sugar,” leaving businesses unready to adjust to the post-pandemic economic situation.

Experts warn that the situation is ongoing, with the ATO escalating debt recovery and the Reserve Bank of Australia’s interest rate hikes tightening financial conditions, creating a difficult business environment.

“The number of insolvency appointments will continue to increase as businesses struggle with the impact of the RBA’s interest rate hikes and the expected increase in collection pressure from the ATO,” said John Morgan, a Director and founder of the boutique insolvency company BCR Advisory.

As the economic recovery enters a more complex phase, businesses are urged to proactively manage their financial positions and seek advice, if necessary.

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