Businesses facing tax cliff edge

A MARKET correction that could lead to a spike in insolvencies has been predicted after years of unprofitable Far North businesses being kept artificially afloat.

Bankruptcy and insolvency accountants have had slim pickings in recent times due to government measures propping up failing businesses through Covid-19.

Those measures include obvious financial packages such as JobKeeper and other support, but also an unprecedented reluctance from the Australian Taxation Office to pursue its debts.

In the pandemic economy, the use of QR codes, working from home, a shift to webbased operations and business efficiency measures have all become ingrained.

But so has a sense of staving off the inevitable.

BDO Cairns partner Todd Kelly, a registered liquidator and trustee in bankruptcy, has been helping corporations and individuals sort out failing businesses for decades.

“In all my 30-plus years, I’ve never seen it this quiet,” Mr Kelly said.

“Last year, rather than the thousands of winding-up orders by the ATO, there would have been about five.

“It’s gone from 20-30 a day over, say, 200 business days to a point where you can count them on both hands for the whole of 2020.”

Not great news if you are in the liquidation business, but it is great for thousands of operators who have managed to keep the wolves from the door.

However, something has to give.

“At some point, it has to correct itself,” Mr Kelly said.

“This goes to the talk of the ‘zombie’ companies out there.

“You’ve got companies that have substantial tax debts going back for extended periods prior to Covid in Cairns and other regions in the north. They have basically been given a pass by the ATO because of Covid, but their debts extend much further back and weren’t able to be managed pre-Covid.

“At some stage the ATO will have to start taking affirmative action.”

The ATO’s reluctance to issue winding-up notices to companies that are not paying their tax debts extends further back than the Covid outbreak.

“The ATO basically pulled up stumps for a period of time and weren’t winding up companies,” he said.

“Then in March 2020, when I expect they were almost ready to ramp up again, we had Covid.

“They don’t want to be pursuing companies during a time of such great uncertainty.”

Mr Kelly believed it was the right decision, even if it could not be maintained indefinitely.

When the ATO opts to start chasing debts again is anybody’s guess but Mr Kelly suspected it would not happen until after the next federal election – for which no firm date has yet been set.

It also remains to be seen how aggressively the ATO pursues debtors, although a softly softly crescendo appeared most likely.

“At some stage they have to bite the bullet otherwise it just keeps backing up,” Mr Kelly said. “I don’t think it’s going to be a tsunami.”

There has been a positive upshot from the stress across the Far North, with some operators set to come out stronger.

“I’ve seen businesses that for years thought they couldn’t do this or change that, but they’ve basically been forced to make changes,” he said.

“They’ve gone in different directions that resulted in more sustainable and financially viable businesses.”