Construction sector owes Australian Taxation Office $7.22 billion

The level of debt that small businesses owe the taxman has gotten out of hand – and there’s one group they’re going after.

Tax time has arrived and after two years of coldness, the tax authorities have become serious. No more Mr Nice Guy. The level of debt that small businesses owe the tax office has gotten out of control and they are coming to collect.

The ATO sent friendly warning letters and more than 20,000 taxpayers responded by paying or signing up for payment plans.

Who has backed off a bit. “About $4 billion or so already,” ATO Deputy Commissioner Jeremy Hirschhorn said on May 19. But taxpayers who don’t respond to letters shouldn’t expect the ATO to give up.

“Where taxpayers fail to engage, the ATO takes stronger action,” he said.

During the pandemic, the ATO stepped in to help the economy. He chose not to bankrupt businesses by not looking for debt. At the time, the government was handing out money to businesses and no one cared about raising revenue. The priority was to save jobs and livelihoods. Now, however, the new treasurer, Dr. Jim Chalmers, faces a trillion-dollar debt. He’s going to need all the money the ATO can find to try to improve the budget balance.

Where can the ATO find this money? Following the Hilux. That’s right, the biggest industry that owes money to the taxman is merchants (and developers). Construction. They owed a staggering $7.22 billion in fiscal year 2020, as the following chart shows. If the ATO got that back, we could afford about half for one of our new nuclear submarines.

“Our initial focus will be on taxpayers with higher debts before including taxpayers with all other debts,” said ATO Deputy Commissioner Vivek Chaudhary.

Lately the ATO has been sending out 30-40 letters a day called Director Penalty Notices. If you get one, you’re in a tough spot. It means you have to pay otherwise they will start very harmful processes. Worst case scenario, if you can’t or won’t pay, the ATO sue you, you lose, they liquidate your business, and because your business loan is secured by your house, you also lose your house . (About half – 49% – of small business loans are secured by residential property.) You end up with legal bills to pay, no business and nowhere to live.

In fact, it might not be quite the worst case scenario when dealing with the ATO. At worst, you have a place to live but there are bars on the windows and you can’t leave… Yes, the ATO puts people in the slammer if they do the wrong thing. Jail. The big house.

To be fair, if you end up in jail, it will be more than for not paying a debt. But if you’ve done something fishy, ​​beware. For example, a swimming instructor was sentenced to three years in prison in May of this year for sending in $250,000 in bogus GST refund claims. She is currently at Brisbane Women’s Correctional Centre. And she had to pay the money back. The number of ATO lawsuits plummeted during Covid, but they are expected to rebound now.

Most debtors will simply repay their ATO debts. The ATO is good at arranging payment plans so you can repay them over time. But some companies will owe more than they can afford and will go bankrupt.

As the following chart shows, there have been relatively few insolvencies in the construction industry over the past two years.

The reaper put away his scythe. Some businesses that would normally have been scaled back were given the option to continue instead. Some have done well, others seem to have done well.

If you factor in what they owe the taxman, they probably better go to bed some time ago.

As 2022 progresses, expect the bank to take over a few Hiluxes and a few construction projects to stagnate as the companies running them fail.

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