Tax office ramps up fight for unpaid debts

The number of applications to wind up companies by the Australian Taxation Office doubled from March to April this year, according to accounting firm RSM Bird Cameron.

Winding-up orders increased again from April to May, which indicates a “clear change of focus” and increased enforcement for the ATO, and the tax office is more aggressively pursuing debts as low as $100,000, reported the accounting firm.

While external administrations in 2014 were “much lower” than the previous three years firm, that could change this year due to the surge in winding-up applications, according to RSM Bird Cameron.

Many small businesses are using unpaid superannuation and GST and PAYG as an artificial form of finance, said managing partner Frank Lo Pilato. 

“This is a sign of the times,” he said. “In the 1980s and 90s, most small business relied on bank or business finance of some type to fund their working capital requirements.”

Lo Pilato said employees were disadvantaged when companies are wound up, as unpaid superannuation is not covered under the Fair Entitlements Guarantee (FEG) scheme. The loss caused by unpaid GST and PAYG obligations is also ultimately borne by the taxpayer when companies are wound up and there is no distribution to creditors, he said.

Where unpaid GST, PAYG and superannuation are being used to fund trading losses, those businesses enjoy an unfair advantage over those businesses which are properly meeting their obligations, Lo Pilato argued.