Australian businesses are facing mounting balance sheet strain, with new Equifax data showing tax debt disclosures climbing sharply even as small and medium businesses increasingly choose to wind down voluntarily rather than enter formal insolvency.
The Q2 2026 Equifax Business Market Pulse found active ATO tax default disclosures rose 18% year-on-year, driven by a 42% surge in new default filings.
Equifax linked the increase to a combination of stronger regulatory visibility and tightening working capital across several sectors, as businesses prioritise day-to-day operating costs over tax obligations.
Brad Walters (pictured), general manager, commercial at Equifax, said the trend reflected the choices businesses are being forced to make.
"The sharp rise in new ATO default disclosures likely reflects both increased tax authority enforcement and tight operational cash flows," Walters said.
The risk compounds quickly once debt accumulates — separate CreditorWatch data shows businesses with ATO tax debts exceeding $100,000 have recorded insolvency rates above 20% across most industries.
Unincorporated SME business exits rose 37% YoY, with the rate of voluntary wind-downs among SMEs outpacing formal insolvencies by 16% YoY. New SME business entries fell 16% over the same period, pointing to broader caution around committing fresh capital.
Large business company insolvencies moved in the opposite direction, dropping 7.8% YoY, though headline large business exits doubled, a trend Equifax attributed largely to regulators clearing out inactive "zombie" companies left over from the pandemic.
Walters said the pattern reflected a deliberate move by directors to avoid formal administration.
"What we are observing is a bit of a 'quiet exit' from many small to medium-sized businesses in Australia. Rather than allowing liabilities to accumulate into formal administration, directors are electing to deregister and walk away as trading conditions remain demanding... Coupled with a decline in new business entries, it indicates a reluctance to commit new capital until the macroeconomic outlook stabilises," he said.
The strain was uneven across industries. Construction recorded a 114% jump in large business exits and a 58% rise in small business exits, alongside a 43% increase in new tax default disclosures and a softening in on-time trade payments. Retail saw insolvencies climb across both large businesses and SMEs, with new ATO default filings up 54%, even as the sector posted the strongest on-time payment performance of any industry measured. Hospitality's large business exits rose 106% YoY, though company and business insolvencies in the sector both fell.
Walters said thin margins and persistent cost strain were shaping outcomes differently across sectors.
"In construction, retail, and hospitality, the spike in voluntary exits shows that operators are choosing to close before reaching severe distress... Logistics is also one of the few sectors with an observed increase in its delinquency rate," he said.
The trend sits within a broader softening in business sentiment — NAB's July Monthly Business Survey found confidence slipped to -6 index points and forward orders fell to their second-lowest level since September 2025.
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