ATO “demands money” from small business as wind-up applications double

The Australian Tax Office applied to wind-up 556 businesses in May, more than double the number of applications that the ATO lodged in July 2014.

The steady rise in government-initiated wind-up applications since 11 months ago has led one Sydney insolvency practitioner to again claim the ATO “has had enough of late payers and is demanding money from SMEs”.

Figures compiled by Jamieson Louttit & Associates show 722 applications to wind-up companies were filed with the Australian Securities and Investments Commission in May.

Of those applications, 556 or 77% were initiated by the ATO.

Jamieson Louttit previously told SmartCompany 200 wind-up applications had been filed in the first 21 days of May and he was predicting the total number of applications for May would exceed 550.

Speaking to SmartCompany this morning, Louttit says the trend will “certainly” continue into June, given there is a number of wind-up applications already “banked up” in the system.

Another 26 applications appeared in the ASIC register today, although not all of these applications will have been initiated by the ATO.

Louttit says by the middle of the month there should be a fair indication of how many wind-up applications the ATO will lodge in June.

“June will probably be around the same number [as May],” he says.

Loutitt says his analysis of the ATO’s annual reports shows the number of wind-up applications filed in May accounts for more than half of the ATO’s annual average.

“In the annual reports they say on average they make 1000 applications a year,” he says.

“They are already at half the annual average and in two months they could do their whole annual average.”

Louttit says it appears the ATO has also lowered the threshold at which it takes action against small businesses that owe it money, from $300,000 to around $30,000.

“If they have reduced the threshold to $30,000 for example, they are targeting small businesses,” says Louttit, who says this approach seems to be at odds with the aims of the $5.5 billion small business package included in last month’s budget.

“There has got to be a better way for the government to collect money or stimulate the economy.”

SmartCompany contacted the ATO but did not receive a response prior to publication. However, ATO commissioner Cheryl-Lea Field previously told SmartCompany the increased activity by the ATO is “not a crackdown”.

‘We have been out talking to the broader business community and business associations and the focus has been on helping,” Field told SmartCompany.

“But we have probably been a bit hesitant around addressing the very small number of businesses not doing the right thing and may be trading insolvent or deliberately avoiding obligations.”

“The community has told us we need to address those businesses down the road.”

Field acknowledged that government-initiated wind-up applications are on the rise but said a wind-up application does not necessarily force the business to close. Instead, Field says it is a mechanism for the ATO to inform a business the next step will be asking the courts to determine if the business is solvent or not.

But the pain for small business doesn’t stop there, with Louttit predicting small business insolvencies will climb in the following months.

“Wind-up applications are a very, very good lead indicator for insolvencies,” Louttit says.

Louttit’s firm produces the Insolvency Notices website, which alerts businesses and accounts payable departments to wind-up applications, which he believes are important warning signs that all businesses should monitor.

“Everyone tracks insolvency appointments but wind-up applications show where appointments will occur next month, and the month after that,” he says.