Australian Floor Group ceased trade in December 2023, with the director advising its recently appointed administrators it was damaged by “unexpected” action taken by the ATO over historical tax debt.

The company, whose five employees have been transferred to a new entity, claimed to have not received any forewarning but was actively negotiating with the ATO when the government department called in its debt, according to administrators at SV Partners.

Further, SV Partners said when the ATO took action it issued garnishee notices to Australian Floor Group’s largest customers, resulting in the withdrawal of contracts worth $4 million. Garnishee notices require customers to pay money owed directly to the ATO to reduce a company’s outstanding tax debt.

SV Partners director and Australian Floor Group administrator Stuart Otway told InDaily his firm was attempting to maximise funds available to the collapsed company’s creditors – primarily the ATO – and that there should be sufficient funds available to pay unpaid superannuation to employees.

However, he noted the company’s situation was one many other South Australian SMEs might find themselves caught in.

“There are many South Australian companies that are in substantial arrears with the ATO, mainly due to COVID-induced financial constraints,” he told InDaily ahead of Australian Floor Group’s first creditors meeting tomorrow.

“With COVID largely behind us, the ATO appears to be sending a message to some businesses that its patience is wearing thin with those who are not demonstrating a concerted effort to address historical tax debt.”

According to Otway, the “COVID grace period is over”, and the ATO was cracking down on those not addressing debt accrued over the past few years.

“South Aussie companies are best advised to keep the lines of communication open with the ATO to ensure that they are not drawing the ire of the tax office,” he said.

“As the ATO has demonstrated with Australian Floor Group, it has the right and the ability to bring a business to its knees. This is one of the strongest responses I have seen in recent times and I don’t think it will be the last.

“My advice to local businesses is to treat this seriously. Don’t stick your head in the sand as far as tax debt is concerned. The ATO takes hard action as a last resort and will work with any business that can demonstrate a genuine desire to address tax debt.”

The administrator said the “worst thing a business can do is to do nothing”, noting the ATO can take a range of measures to address tax debt.

“Any businesses that find themselves in financial hardship should be proactive in their management of the situation,” he said.

“Don’t leave it too late for the situation to be remedied.

“Approach a registered liquidator (lists are available from ASIC) who can explain the myriad options and strategies that can be applied to minimise damage and liability.”

It follows a stern warning from the tax office in October last year, with ATO assistant commissioner Jillian Kitto noting “paying tax is not optional”.

“Businesses with employees must also pay their staff’s super on time,” Kitto said in October.

“We are encouraging people to get their tax and super affairs in order and to engage with us prior to the deadline if they find themselves in financial difficulties.

“Our preferred approach is to work with you through engagement rather than enforcement, and we expect anyone who can’t pay on time to reach out to us or their tax professional before their bill is due.”

She said it was in business’ “best interest to engage with the ATO before the bill is due”, and highlighted that interest on overdue tax debts compounds daily at an annual rate of 11.15 per cent.

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