Victoria Leads Insolvency Surge Amid ATO Crackdown

Victoria is experiencing the highest rise in business insolvencies among mainland states, with a 63% increase over the past 8 months. The Australian Taxation Office is stepping up efforts to recover over $35 billion in small business debt after a period of pandemic-related leniency, putting additional pressure on struggling businesses.

Nationwide, there have been 8,789 insolvencies from July 1, 2024, to February 16, 2025, according to the latest Australian Securities & Investments Commission data. Victoria recorded 2,560 insolvencies, outpacing Queensland’s 44% rise to 1,643 and New South Wales’ 30% increase to 3,395. Experts suggest that Victoria’s prolonged COVID-19 lockdowns may have delayed financial distress, causing a delayed surge in insolvencies.

Small businesses in Victoria now face tightened tax enforcement, with the ATO issuing director penalty notices and winding-up applications at double last year’s rate. Business analysts note that despite the sharp rise, Victoria's insolvency share remains proportionate to historical trends, suggesting a catch-up effect rather than a worsening crisis.

The broader economic impact is evident in Melbourne’s commercial property sector, where office occupancy remained at just 59% in late 2024, the lowest among major Australian cities. With vacancy rates holding at 18%, well above the 13.7% national average, businesses are struggling to regain pre-pandemic stability.

As the ATO ramps up debt recovery actions, the financial health of small businesses will likely depend on trading conditions across industries and states. Companies unable to meet tax obligations may be forced into restructuring or liquidation, contributing to ongoing insolvency pressures.

Source: The Australian, AICM, Lawyers Weekly