Credit risk management insights from the ATO annual report

Overall ATO collections performance

In 2023–24, the ATO had one outcome to deliver for the Australian community:

“Confidence in the administration of aspects of Australia’s taxation and superannuation systems, including through helping people understand their rights and obligations, improving ease of compliance and access to benefits, managing non-compliance with the law; and in delivering effective and efficient business registry services.”

Managing non-compliance with the law has had a significant impact on businesses. The ATO’s return to business-as-usual debt collection activities is well-publicised. ATO enforcement action has driven an increase in small business restructuring appointments, court recoveries and winding up applications.

The ATO collected $140.2 billion in company tax for 2023-24, a decrease of 6.6% from the previous year. However, this was $11.8 billion above the Federal Budget forecast, which the ATO states reflected stronger‑than-expected corporate profitability and higher-than-expected commodity prices.

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Director penalty notices and disclosure of business tax debts

Director penalty notices (DPN’s) continue to ramp up post-COVID by the ATO as a tool to hold company directors personally accountable for unpaid tax debts. They are also changing their approach to collecting unpaid tax and super, focusing on businesses who refuse to engage with us and issuing DPNs and garnishees more quickly. These notices are driving insolvencies that often come ‘out of the blue’ to suppliers.

In 2023–24, 26,702 DPNs were issued for company debts totalling over $4.4 billion – with approximately $879 million collected as of 30 June 2024.

They disclosed over 36,000 business tax debts to credit reporting bureaus (including Access Intell), an increase of 867 from the previous year. We see this as an absolute win for our clients, increasing transparency of these debts and enabling informed decision making.

The year saw a 21% increase (to 28,000) in notifications from employees advising their employer may not have met their super guarantee obligations, paid their superannuation late or made payment to an incorrect fund. This general warning sign of risk should keep credit managers on high alert.

8,714 DPNs were issued to individual directors of 6,493 companies, for an original imposed value of $572.7 million in unpaid super guarantee, with $483.6 million remaining outstanding.

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Debt holdings increase but collectable debt growth slows

The value of debt holdings increased across most taxpayer types, with the ATO indicating this reflects the challenging economic environment and its impact on cash flow.

Collectable debt growth slowed from 12.0% in 2022–23 to 5.2% in 2023–24. The ATO attribute this to the return to business-as-usual debt collection activities post the COVID-19 pandemic and the adoption of a firmer posture towards debt repayment.

Small businesses continue to account for most of the collectable debt value, at $35.2 billion.

This return to normal collection activities has also resulted in increases in the identification of debts that are uneconomical or irrecoverable at law. The value of debt not pursued rose to $6.8 billion, up from $3.5 billion in the previous year.

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Disengaged collectable debt driven by small business, construction and accommodation and food services

The report provides insights on where the greatest disengaged taxpayer collectable debt holdings are sitting in relation to company size and industry. These figures relate to taxpayer debts over $100,000 and older than 90 days – where the taxpayer is not actively engaged with the ATO in respect to their debt.

Small businesses account for the majority, with $10.9 billion of the total $15 billion value.

Little surprise that the construction industry has both the highest number of disengaged taxpayers with collectable debt (14,079) and the highest value at $4 billion. Accommodation and Food Services have been a key driver of insolvency figures, which is reflected in their position as the third highest in both number (4,220) and value ($1.3 billion).

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Insolvency debt continues to rise

We see that insolvency debt has risen sharply for small business. Insolvency debt from privately owned and wealthy groups increased moderately, while public and multinational businesses remained steady across the three-year period.

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Director Identification Numbers (Director ID) grow to 89%

It is vital to know the names and details of company directors before approving trade credit. Previously, director information could be hidden or difficult to obtain. The government’s Director ID program means that the person has successfully verified their identity, improving both data integrity and traceability of directors’ relationships with companies over time. These IDs also help prevent fraudulent directors and illegal phoenix activity.

The ATO states they continue to drive adoption of director IDs, resulting in over 300,000 being issued in 2023-24. This brings the total issued to over 2.6 million, with the ATO estimating that 89% of directors now have one.

This focus will continue into the 2024-25 year, with the ATO supporting and educating directors to meet their obligation to obtain an ID.

Access Intell uses director IDs to display ownership details of an entity and cross-directorship details. The rising compliance gives further confidence that director information is accurate and reliable.

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One million ABNs cancelled

The ATO conducts regular checks to ensure information on the Australian Business Register (ABR) is current and accurate. Removing non-entitled ABNs from the ABR has resulted in an active ABN population of just over 8.9 million. Contact was initiated with 1,049,606 clients to assist them to cancel their ABN, with 955,732 cancelled.

Ensuring your customers have a valid ABN is vital for continuing trade. Our platforms sync with the ABR to verify and then continually monitor the status of your customer’s ABNs to ensure they remain active.

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What we can expect in the year ahead

The ATO has a stated focus on proactive approaches that help businesses get things right from the start, with early engagement for issues to get them back on track quickly. However, they also take firm action against those doing the wrong thing. We continue to see stronger statements from the ATO about their enforcement activities.

In the year ahead the ATO will continue to focus on the recovery of debts whilst enforcing timely payment of employer obligations. With this proactive approach, we expect to see continued high levels of ATO-driven small business restructuring appointments, court recoveries and winding up applications. All contributing to a continued elevated level of insolvencies.

The full report is available on the ATO website.

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