In the 2024–25 budget, the Australian government introduced a new measure that would allow the ATO to have the discretion not to offset refunds against tax debts of small businesses, provided the debts were placed on hold before 1 January 2017 and remained on hold.

“Until the measure is law, we will continue to pause offsetting of debts of individuals, small businesses and not-for-profit entities that were placed on hold prior to 1 January 2017 and remain on hold,” the ATO disclosed in a statement.

In response to this announced plan, Insolvency Australia has advised SME firm owners to strictly adhere to their tax compliance, stating that the beginning of the new financial year provides a prime opportunity for firms to do so.

Insolvency Australia has recommended that SME firm owners ensure strict adherence to tax compliance, emphasising that the commencement of the new financial year provides a prime opportunity for firms to do so.

“The ATO is hellbent on collecting what it’s owed and is really doubling down on compliance,” Insolvency Australia director Gareth Gammon said.

“In addition to increasing the number of director penalty notices (DPNs) being issued, the ATO is also taking to the courts. In May, winding-up applications spiked, primarily driven by the ATO.”

Gammon also stressed that the ATO is not the only entity driving wind-ups and explained how major creditors, including large banking corporations, are also evading their efforts to collect tax debts.

“It’s not just the ATO initiating wind-ups; other creditors, including the big four banks, are also becoming increasingly active. Last month, there were record-high insolvencies, tracking more than 50 per cent above pre-pandemic levels,” he said.

VIEW ALL

“That’s why EOFY is ideal to assess the state of your tax situation, collect outstanding customer payments, and give your business a ‘health check’ to determine how it’s going.”

In order to stay ahead of these challenges, Chris Baskerville, a member of Insolvency Australia and a partner at independent law firm Jirsch Sutherland, advised SME firm owners to disclose their financial shortcomings, even if they can’t immediately address them with payments.

“That means lodge your tax returns on time – otherwise, statutory bodies will give you no leeway if they have no oversight of the state of your business. One of the first things the ATO will ask when a business gets into trouble is whether they have paid employee benefits such as superannuation, so it’s wise to ensure these payments are up to date,” Baskerville said.

One of the most essential tasks for SME firm owners to complete in preparation for the upcoming financial year is to develop a 12-month cash flow projection to ascertain the future state of their business next year, he added.

Further, a significant trend that SME owners should stay aware of is the growth of small-business restructuring (SBR) plans, and Baskerville noted that “SBRs have the potential to help businesses reduce debts by $700,000 to $800,000”.

To assist SME firm owners in navigating the end of the financial year in line with the ATO’s proposed new discretion, Insolvency Australia offered eight tips that owners should incorporate into their practice:

• Prepare and deal with statutory and tax obligations.
• Get your books and records in order.
• Review your current and forecast cash flow.
• Collect outstanding debts.
• Give your business a “health check”.
• Prepay expenses (e.g., rent, leases, bills) to claim a tax deduction.
• Identify where you can cut costs for the new financial year.
• If in financial distress, speak with a specialist insolvency/business turnaround practitioner.