Debt owed to ATO by insolvent entities soars 36% to $5.3 billion as taxman’s crackdown continues

The effects of the downturn are still plaguing businesses, with debt owed by insolvent companies or individuals rising by more than 35% to a staggering $5.3 billion during the 2010-11 year, according to the latest Australian Taxation Office annual report.

The report also reveals the ATO has continued to crack down on indebted companies, with more than 1,000 wind-up notices issued during the 2010-11 financial year in a 116% increase from the previous corresponding period.

As a result, collectable debt has fallen from $14.7 to $14.1 billion. But in a development that highlights what the ATO says are ongoing effects of the downturn, debt owed by entities entering some insolvency action has increased by 35.8% to $5.3 billion.

Insolvency debt refers to debt associated with an entity, whether a company or individual, that has undergone some sort of insolvency action.

The ATO figures show there were just 493 wind-ups in 2009-10, but that figure rocketed to 1,055 in 2010-11. Total personal bankruptcies initiated by the ATO were up 16% to 452.

The figures come as the ATO has continued to crack down on SMEs over the past 18 months, as it moves away from its more lenient stance adopted during the financial crisis.

But Dissolve chief executive Cliff Sanderson says the actual number of companies in trouble could be higher, as the ATO’s annual report doesn’t specific how many director penalty notices are given out.

These can often trigger a company entering liquidation or administration. But those insolvency actions cannot be directly attributed to the ATO.

“What the ATO will do is send out a stroppy letter, send out a penalty notice if certain things haven’t been paid. It will then be on the director’s mind to do a voluntary liquidation or administration.”

“If that hasn’t happened, then the ATO gets back on track and winds them up. So there is a whole batch of companies where the ATO acts as a catalyst.”

The ATO figures and the assumption of more director penalty notices gel with the latest ASIC figures which show a record number of companies have collapsed into insolvency this year.

Sanderson says the figures reflect what he is seeing in the marketplace – more businesses are struggling to stay afloat, and the ATO is on their tails.

“We certainly still regularly get calls from directors, and the issue they have is that the taxman is saying ‘enough is enough’, and putting them into some sort of action.”

“It’s lots and lots of little companies. There are some mid-tier SMEs, but for the vast majority these companies are very small.”