The Australian Taxation Office views small business tax debt as a major problem. The ATO says that small business debt is two-thirds of the $37 billion owed to the ATO—in other words, $24 billion.
Fortunately, the ATO does recognise that much of existing small business debt is the direct result of huge losses small business people suffered due to Covid lockdowns and restrictions. The ATO is showing some understanding. But we hope that the understanding is sufficient and that it will ‘stay the course’. Here’s one story that demonstrates the ‘Covid business disaster’ experienced by (at least) tens of thousands of self-employed people.
I had a chat the other day with a single mum who’s been running her own small business for about six years. She rents a commercial space that’s critical for her particular business. Things were going reasonably well and in 2019 she needed to move from one premises to another. She spent quite a bit of money upgrading the new premises, moved in and business was looking up. Then Covid hit in early 2020.
During the entire Covid lockdowns of 2020–21 the rules meant that she was prohibited from operating at all. Income dropped to zero. Yes, zero! She’d signed a five-year lease and had a bank mortgage. In early 2022 she could start operating again. But the loyal customers she had built up had drifted away. She’s had to rebuild, and although things are looking better, they are not yet back to pre-Covid (2019) levels.
She owes money to the ATO related to her pre-Covid trading. The ATO (fortunately) has her on a payment plan. She’s been very upfront with the ATO. But she’s still needing to cover her mortgage payments plus pay the rent on her premises. If she loses the premises, she’s out of business.
She talked to me about the struggle. I really don’t know if she can survive. She’s a self-motivated, positive, ‘go getter’. But my words of encouragement and support are just words and don’t cover the bills. She’s the sort of person who is most likely to battle through and, give her several years, get on top of the mess and start to make a profit again.
This lady is just one typical story. The economic pain of Covid has impacted the most vulnerable in our community—the ‘go getter’ small business individuals.
We hope that the ATO maintains its small business patience and support. But this needs to happen on a case-by-case basis, with high quality ATO communication and realistic assessments of individuals’ circumstances. It will be a long haul over several years. This is the economic ‘long Covid’.