Collectable debt owed to the Australian Taxation Office increased by 6.5% in 2012-13 to almost $18 billion, with small business owing the ATO more than 60% of the debt.
According to the 2012-13 annual report from the ATO, small businesses owe the Tax Office approximately $10.6 billion.
In an effort to combat the rising debt and reduce costs, the ATO is piloting a debt recovery program and is considering outsourcing this aspect of the ATO’s functions to third parties.
The ATO is working with an Australian university to develop a targeted debt-collection strategy where through analysis it can identify cases which are likely to be finalised without intervention and those requiring collection action.
This program was trialled in the last financial year and is being implemented in 2013-14.
Total collectable debt owed to the ATO increased from $16.6 billion in 2011-12 to $17.7 billion in 2012-13. Collectable debt is money owed which the Tax Office deems able to be collected.
The level of collectable debt inflow to the ATO jumped 12.9% in 2012-13.
In 2012-13 the tax office collected $311.8 billion, a 3.6% increase on 2011-12. Despite increasing from 2011-12, the low growth rate mirrored the low growth in gross domestic product.
However, CPA Australia head of business and investment policy Paul Drum told SmartCompany the rise in debt correlates with the rise in net tax collections.
“Businesses are still making profits and the tax collection, booked through the commissioner, increased in 2012-13 compared to 2011-12. However, if collections are up, so is debt,” he says.
“Unless there is a major shift which sees small businesses becoming very cashed up, when collections increase you also expect debt to increase.”
Drum says debt has increased more than collections because many small businesses are still recovering from the GFC.
“It’s early days still… it’s certainly not all beer and skittles in the business world. We’re cautiously optimistic about the prospects of 2014, but not all sectors of the economy are going gangbusters,” he says.
The ATO’s report says slower than forecasted economic growth has resulted in weaker than projected collections for most taxes.
“More than two-thirds of the shortfall is accounted for by the weakness in company income tax collections and lower than expected resources rent tax collections, particularly the mineral resource rent tax,” the ATO says.
Debt management is a key issue for the ATO, which is under pressure from the government to cut costs.
In the May budget, the former Labor government gave the Tax Office $106 million to improve the management of tax debts and superannuation guarantee changes.
When companies collapse the ATO is commonly a creditor, often owed millions of dollars in unpaid taxes.
In the year to June 30, $1.8 billion of debt was deemed unrecoverable by the ATO as a result of companies being wound-up or bankrupt.
The ATO provides support for small businesses it considers capable of repaying the debts. They can enter into support arrangements with the Tax Office, including payment plans aligned with each business’s cash flow and ability to pay.
Drum says small businesses neglect to pay the ATO because it’s not a high priority.
“Businesses priorities are to do the things they need to do so they can open their doors every day. What does that mean? It means the bills they prioritise are lease payments, staff wages, utilities bills paying suppliers for stock,” he says.
“It’s not necessarily in that order, but it’s all about keeping the doors open and being able to transact each day. It’s a fact of life that these things rate higher than tax obligations and the rest of it is just about cash flow.”