Small and micro businesses are turning up to tax clinics with average debts of $80,000

Small business and microbusiness owners are fronting up to the University of New South Wales tax assistance clinic with an average tax debt of $80,000, as debt counselling experts report a “perfect storm” of financial headwinds.

The UNSW Tax and Business Advisory Clinic offers free tax and business advice to both small businesses and microbusinesses, defined as anything from a sole trader to a business with five paid employees.

While microbusinesses are minuscule on their own, they represent around 60% of all small businesses in Australia.

Ann Kayis-Kumar, an associate professor in the School of Accounting, Auditing and Taxation at UNSW, last week said its small business and microbusiness clients are now facing extraordinary financial pressures.

“With an average tax debt of over $80,000, it is not surprising that over a third of our microbusiness clients rate their financial distress levels as a 10 out of 10,” Kayis-Kumar said.

The average microbusiness to visit the clinic now has eight years of overdue tax returns.

Paul Viola, a UNSW lecturer and clinic supervisor, said its clients often face a number of complicating factors.

Contractors working for the first time under an ABN may not understand their tax obligations, he said.

Family breakdowns can hamper the tax compliance of small family-run businesses, he added, especially when one family member is left with tax duties for the first time.

Clients facing domestic violence face even more significant issues, making tax compliance difficulties an “unexpected consequence once barriers between former couples emerge”, he added.

The latest findings do not come as a surprise to Helen Davis, general manager of the free-to-use Small Business Debt Helpline.

Speaking to SmartCompany on Wednesday, Davis said small business clients reported a median tax debt of $95,000 in the six months to December 2o22.

That figure more than doubled from the median tax debt reported in the six months to December 2021.

Small businesses and microbusinesses are navigating “a perfect storm of debt”, she said, comprised of not just overdue tax obligations, but lingering commercial lease payments from the era of pandemic lockdown leniency, and rising loan repayments.

“They’re having to catch up on past payments,” she said.

“And in many instances, they can’t catch up on the revenue they lost during that period.”

A hairdresser which lost out on revenue through COVID-19 lockdowns cannot simply recoup what it would have made, Davis said.

The influence of family breakdowns and domestic violence among callers is something the Small Business Debt Helpline has also observed.

Taxpayers facing mental health issues are particularly vulnerable, she added.

While small business and microbusiness owners are facing significant challenges, Davis said institutions like the UNSW Tax and Business Advisory Clinic offer “such valuable service” to taxpayers in difficult circumstances.

Those interested in the services offered by the clinic can visit its website, or call on 02 9385 8041.

The Small Business Debt Helpline is accessible online and by phone at 1800 413 828.

Accountants have also urged taxpayers to proactively contact the ATO if they believe they will have difficulties meeting their obligations.