Wednesday, 29 July 2015

Tax Commissioner continues campaign against rogue SMEs

Recent ATO winding up activity
Chart courtesy Insolvency Notices
THE Commissioner of Taxation's campaign to cull recalcitrant non-compliance from the Small-to-Medium Enterprise sector (SME) is continuing at near record levels, with more than 450 company winding up applications lodged with the courts in June.

While less than the record 556 wind-ups filed in May, the June numbers still dwarfed the ATO's previous monthly record of 361 applications - filed in August 2013 - and take total winding up applications initiated by the ATO to more than 1100 in two months. Prior to May 2015, the ATO's monthly average was 92.

"The activity by the ATO is still very substantial," said Jamieson Louttit, who produces analysis based on insolvency notices lodged with the Australian Securities and Investments Commission (ASIC).

"They are way higher than average and I do think it's reflective of the Government being short of cash," he said. "While the ATO winding up notices have come off a bit, there's still significant pressure being applied by the ATO issuing director penalty notices (DPN) and garnishee notices," Louttit said, though he had no hard numbers for DPNs and other actions at the sharp end of enforcement.

"They are not published anywhere," he said. "I tried Freedom of Information and was told I'm wasting my time."

The ATO declined to provide specifics on DPNs and garnishee orders when contacted by SiN. "In 2014-15, we supported small businesses by providing over 500,000 payment arrangements that allowed them to manage their tax debts," the regulator said.

"During the year, there were about 1,000 ATO-initiated small business wind-ups, however, we did have a greater focus on legal action in the second half of the 2014/15 year and filed about 1200 wind up actions in this period."

Louttit believes that the ATO's campaign is having a positive effect because not all companies subject to a winding up were proceeding to liquidation. The threat of insolvency is, he suspects, motivating a proportion of directors to settle their companies' debts. But he said specific SME sectors are struggling.

"The construction industry is being hit at the moment. So is retail. We're finding that and it's all small business," he said.

"For every four of these insolvencies I reckon another business goes under because of it. It's like a snow ball rolling down the hill, getting bigger and causing more damage as it accelerates and it's the ATO that's pushed it down the hill."

In terms of a general increase in insolvency appointments, Louttit's view is partially supported by the latest statistics on national insolvency appointments released by ASIC earlier this month. Appointments in the retail trade industry increasing from 75 in May 2015 against 61 in April and 53 in March.

Appointments in May were up 11 per cent on the previous month - from 1081 in April to 1199. And while construction and retail trade might be under pressure the most calamitous trend was in managed investment schemes (MIS).

Last May, nine MIS entered external administration, a 350 per cent increase compared to April and the highest number since July 2013 when 12 schemes capsized.

With August approaching, it should soon be possible to observe the ATO's wind up campaign over a three month period and as the graph above shows, the July forecast also look well above average.

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