ATO Confirms Support for Small Business Restructuring

The ATO has been doing the rounds lately confirming their support for Small Business Restructuring.

In a recent talk at the Tax Institute’s Tax Summit 2023, Deputy ATO commissioner Vivek Chaudhary suggested SBR may be a solution for small businesses in the face of their new policy to crack down on the record debt levels in the sector.

Chaudhary started with an update that “collectable” tax debt has increased over the last 4 years from $26.5 billion in June 2019, to $50.2 billion by June 2023 – an 89% increase.

In response to the increased debt levels, Chaudhary has confirmed the ATO has transitioned from their “more lenient approach during the pandemic” to “business-as-usual when collecting overdue debts.”

Chaudhary went on to say: “You will have seen more activity over the last 12 months, with an increase in firmer actions, and a willingness to escalate to legal actions, for large debts especially those who are choosing not to engage. We are reaffirming our expectations of clients and resetting what clients can expect of the ATO. Practically speaking, this means you and your clients can expect to see us acting earlier than we have been.”

Of this total debt book, $33 billion is owed by small businesses. $24.8 billion of that debt owed by small business is PAYG, GST or Superannuation, and therefore at risk of receiving a Director Penalty Notice.

In regards to DPNs, Chaudhary confirmed that since July 2022, over 24,000 director penalty notices have issued to individual company directors in respect to over 18,000 companies.

Careful to say the ATO does not provide insolvency advice to tax debtors, Chaudhary went on to describe the Small Business Restructuring process, as one potential option for small businesses that find themselves in difficulty.

Chaudhary said the following on the ATO’s approach to SBR: “92% of restructuring plans received since 2021 have been accepted by creditors. To date, the ATO has supported most restructuring plans, voting in favour of 91% of them. Each plan is assessed on its merits and our voting history shows our commitment to supporting businesses through restructuring.”

“Where the Commissioner is the major creditor in a restructuring appointment, the ATO is open to providing feedback on the draft restructuring plan prior to it being finalised and formally issued to creditors.”

These statements reaffirm our experience that the ATO is very supportive of the SBR process. They actually want small businesses to restructure and are looking for a reason to say yes when it comes to voting on proposed plans.