The construction sector has the highest debts, greater than $100,000, of all Australian industries, according to new ATO data.
The shocking stat comes as hundreds of construction companies continue to close as a result of mounting debts business owners are unable to pay.
Nearly 40 per cent of those construction companies with debts exceeding $100,000 have failed after defaulting on their tax debts in the last six months, with in-debt tradies officially ranked 5th in overall business closure rates.
The data provided by financial services, risk mitigation and analysis provider CreditorWatch showed the Media and Telecommunications sector had experienced the highest failure rate due to overwhelming tax debts at 55 per cent, followed by Electricity, Gas, Water and Waste Services, Food and Beverage Services, manufacturing and then the construction industry.
However, despite ranking fifth for six-month closure rates, construction tops the list for its total volume of industry tax debt, with the industry accounting for more than 22 per cent of debts currently owed to the ATO.
The figures paint a concerning picture for an industry still recovering from the aftermath of the COVID-19 pandemic, which affected the tax office’s hands-off approach to debt collection nationwide.
However, they have now significantly ramped up ‘firmer actions’ in the post-pandemic period in an attempt to recoup owed amounts, forcing businesses of all types into closure as they struggle to survive in a world of increased operating costs.
This means that businesses with longstanding tax debts to the ATO will likely face increased pressure to pay off what they owe or risk facing further consequences.
Build-it spoke to CreditorWatch CEO Patrick Coghlan, who recommended a proactive approach for sole trader tradies and construction companies with outstanding tax debts or risk ending up in a worse situation with time.
“I’d like to stress the importance of engaging with the ATO as soon as possible in this situation – whether your intention is to pay the debt entirely or enter into a payment plan,” he said.
“The tax office has stated that they are willing to work with businesses that have outstanding debts as long as they actively engage with them. Sticking your head in the sand won’t make the debt disappear.”
Debt avoidance key
However, Patrick says his best advice was for tradies to avoid racking up excessive tax debt in the first place by staying on top of their taxes and implementing the following three tips.
“There are a few simple things tradies can do to stay on top of their tax obligations. Firstly, make sure you’re on top of your receivables and you’re getting paid on time. Late payments and non-payments make it much more difficult to manage cash flow and meet your tax payments,” he told Build-it.
“Another tip would be to make sure you lodge returns and activity statements on time – even if you can’t pay on time – to avoid penalties for late lodgements.”
“And finally, I’d suggest meeting with an accountant to help make sure that you’re budgeting properly and are able to meet all your tax obligations in a sustainable way that leaves you with sufficient capital to grow your business.”
CreditorWatch Chief Economist Anneke Thompson echoed the importance of staying out of tax debt, warning the current economic climate would put any construction business in an extremely challenging situation.
“Even in good trading conditions, paying off a debt of over $100,000 is hard enough,” she said.
