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Thousands of micro-businesses facing ‘tax debt crisis’


Micro-businesses are facing overwhelming levels of financial stress with the average tax debt sitting around $80,000, UNSW research reveals.

By Miranda Brownlee 10 minute read


 Over a third of micro-business clients at the UNSW Tax and Business Advisory Clinic are reporting high levels of financial stress with many struggling with lodgment obligations and significant tax debts.

The UNSW tax and business advisory clinic, which provides free tax and businesses advice and education, found over a third of its micro-business clients rate their financial distress levels as a 10 out of 10.

UNSW Business School estimates there are many millions of small or micro-businesses that are “crashing in and out of the system” every year.

“One of the primary challenges faced by microbusinesses is the lack of knowledge and expertise in completing their tax returns and business of activity (BAS) statements,” said Michael Walpole, co-founder and professor at the School of Accounting, Auditing and Taxation, UNSW Business school.

“Very often, microbusinesses will not have saved enough money to pay the tax.”

Without proper guidance or knowledge microbusiness owners may find themselves teetering on the brink of bankruptcy.

“Many microbusinesses have multiple years of un-lodged BAS, with some even dating back to the year 2000, which has seen their ATO penalties and financial obligations snowball. The average microbusiness helped by the clinic has racked up eight years of overdue tax returns,” said Professor Walpole.

“For the most part, people have not gotten into this situation through bravado or recklessness. They’ve got into this situation through misunderstanding, and of course, they pay the most imminent bill.”

Microbusinesses can fail to understand compliance obligations in a variety of scenarios.

“A common reason is that someone takes on contract work due to personal circumstances as a sole trader using an ABN but doesn’t know where to start in terms of their tax obligations,” said Paul Viola, lecturer in the School of Accounting, Auditing and Taxation at UNSW Business School.

Other scenarios are often seen in family business arrangements, where there have been relationship breakdowns or domestic violence.

“Usually, one partner has more interest in the business or more of an understanding of the day-to-day operations and financial obligations,” said Mr Viola.

“Some business owners are in a situation where they’re experiencing domestic violence or have experienced it. Many of these victims experience difficulties gaining control over their finances after the fallout because they don’t have access to records or feel uncomfortable requesting them from their former partner.”

More than half of the female clients seen by the clinic have experienced domestic violence.

“As a result, tax problems are an unexpected consequence once barriers between former couples emerge,” he stated.

Microbusinesses can usually afford to pay an accountant when the business is established but if it starts to struggle can no longer afford the cost.

This leaves them with financial reporting obligations but no understanding of how to meet them.

“Taxpayers continue what they do and don’t recognise their tax obligations. You wouldn’t say this was a case of ignorance, but it’s more a case of just not knowing how or wanting to deal with it.”

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Miranda Brownlee

Miranda Brownlee


Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: miranda.brownlee@momentummedia.com.au

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