Business tax debt rising

One alternative and on-demand source of debt finance for businesses is the Australian Taxation Office, with deferral of avoidance of liabilities to the ATO one way of buying time to repair the otherwise dubious solvency of an enterprise.

Reporting by the ATO on patterns in business tax liabilities is patchy, but the Tax Office did offer some crumbs of data yesterday.

Michael D'Ascenzo, Commissioner of Taxation, at a speech to a small business summit in Melbourne yesterday said that there are around 706,000 micro businesses with a turnover under $2 million that have a tax debt. In total these businesses owe the ATO $6.5 billion.

Whether that tax debt was growing or falling and by how much D'Ascenzo did not say.

The ATO did argue in its annual report for 2008 that its efficiency in collecting business tax debts was improving and that business tax debts (across all sectors of business) represented about four per cent of collectable tax.

Business tax debts do appear to be rising, however.

Maryanne Mrakovcic, general manager of the tax analysis division of Treasury, told a Senate estimates hearing last week that "we are seeing growth to date of about 7.9 per cent" in activity statement debt.

The context of her answer to questions raised by Senator Alan Eggleston suggests the growth is over the course of a year, or maybe the financial year to date.

Credit advanced by private sector lenders for business purposes increased by 3.5 per cent in the year to April 2009, financial aggregates published by the Reserve Bank of Australia show, with an actual decline in the level of business credit from the private sector over each of the last three months.

In this context the resort by businesses to the bank of the ATO for credit is typical of the business cycle.

The level of debts to the ATO is also likely to escalate given the decisions, reported below, to allow businesses to more readily defer tax liabilities.