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Supportive tax initiatives tackle rising insolvencies

The timing of the Federal Government’s tax amnesty for small businesses in Australia is highly advantageous, especially considering the recent surge in insolvencies during the current financial year. 

Startling data reveals a substantial 25 per cent increase in business insolvencies, underscoring the urgent need for supportive measures.

Earlier, in a promising move, the Australian Tax Office (ATO) committed to alleviating the burden on select small businesses by eliminating failure-to-lodge penalties. This beneficial initiative applies to enterprises with an annual turnover of less than $10 million. Moreover, the ATO has gone a step further by introducing payment plans to facilitate the settlement of accrued taxes.

The much-needed relief for small businesses arrives at a critical juncture, as recent data released by the Australian Securities and Investments Commission (ASIC) paints a troubling picture. 

According to ASIC’s findings, a staggering 6,144 Australian businesses have already been placed into administration during the current financial year, representing a significant 25 per cent increase compared to the previous year. This increase is even more concerning because the financial year is still ongoing, highlighting the urgency for effective measures to address this distressing trend.

Among the states, New South Wales (NSW) has been hit the hardest, experiencing a distressing 77 per cent surge in business administrations from April 2022 to April 2023. The number of administrations in NSW skyrocketed from 1,422 to 2,520 during this period, illustrating the severity of the challenges faced by businesses in the region. Similarly, Victoria witnessed a notable rise, with the number of administrations climbing from 995 to 1,665. Queensland and South Australia have also witnessed concerning increases, with administrations jumping from 720 to 1,133 and 164 to 238, respectively.

These statistics underscore the urgency and necessity of implementing measures to support struggling businesses throughout the country. The alarming rise in administrations highlights the fragile state of many enterprises, emphasising the crucial role played by initiatives such as tax amnesty and flexible payment plans.

The tax amnesty initiative is an essential lifeline for small businesses grappling with financial difficulties. By waiving the failure-to-lodge penalties, the government acknowledges the unique challenges faced by these enterprises and their critical role in the Australian economy. This amnesty offers a vital opportunity for small businesses to rectify their tax affairs without incurring further penalties, facilitating their recovery and potentially preventing further insolvencies.

“This is great news for Australian SME’s that have accrued a tax debt during the COVID years,” says Angus Sedgwick, CEO of leading finance solutions company OptiPay.

“At the request of the Coalition government, the ATO allowed Australian businesses not to pay BAS and PAYG during that time, which resulted in $ 30 billion of unpaid taxes.”

“This amnesty will allow businesses that are struggling with rising interest rates and restricted access to capital in a high inflationary environment to implement a payment plan for accrued taxes,” says Mr Sedgwick.

“But it is essential business owners engage with the ATO rather than take a ‘head in the sand’ approach hoping they won’t come knocking,” he adds.

“It’s been a tough time for Australian businesses with inflation, rising costs, tax collection and traditional bank finance drying up for many,” says Mr Sedgwick.

“We’ve had a huge spike in broker-driven enquiries as access to capital becomes more difficult.” 

OptiPay specialises in invoice financing – a revolving line of credit against unpaid invoices – to improve business cash flow. “Any business that invoices another business for goods or services on credit terms is a good candidate for an invoice financing facility,” says Mr Sedgwick.

“Businesses can typically access up to 90 per cent of their sales revenue within 24 hours of issuing the invoice. Unlike traditional business loans there are no ongoing repayments to service as the financier is repaid when the debtor makes payment of the invoice/s. The fee paid to the financier usually ranges from <1 per cent up to 3 per cent of the invoice value. All OptiPay facilities come with the added benefit of Trade Credit Insurance which protects our clients in the event of insolvency of their customers”.

“Cash flow is everything for a business and in the current economic times it’s even more important it’s maintained,” he says.

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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