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The Australian Taxation Office (ATO) has pledged an increased focus on lingering business debts while preparing a new, multi-year program to improve small business tax performance. This was announced by Commissioner of Taxation Rob Heferen, who recently took over the position from long-serving commissioner Chris Jordan.
It is clear that the generosity has ended during COVID times, where collection activity from the ATO had effectively ceased. The result of this was a ballooning of outstanding debts, of which the majority is owed by small businesses.
Over half of this debt is estimated to be what the ATO terms high priority debt, which stems from unpaid super, Pay As You Go (PAYG) Withholding and Goods & Services Tax (GST). From their perspective unpaid GST is amounts that businesses hold on the ATO’s behalf, and any unpaid super and PAYG belong to the employee. For these reasons debt collections have escalated. These debt collection practices include letters, engagement by ATO officers, garnishee notices, Director Penalty Notices, reporting tax liabilities to credit reporting agencies and further legal action.
The instances of Director Penalty Notices issued by the ATO have increased of late. A Director Penalty Notice allows the ATO to pierce the corporate veil and make a director personally liable for GST, PAYG Withholding and Super Guarantee Charge owed by a company. If you receive a Director Penalty Notice, you have 21 days to take action.
Further evidence of this increased focus on debt collection is recent Government announcements, the first being payday superannuation. From 1 July 2026, employers will be required to pay their employees’ super guarantee at the same time as their salary and wages. This measure is not yet law, and industry and stakeholders are currently being engaged on these changes.
Another announcement is the Government’s intentions to amend the tax law to deny deductions for ATO interest charges. This change is to commence on or after 1 July 2025, and is also not yet law. The current annual rate for General Interest Charge is 11.38%.
If you are unable to pay your debts on time, it is important to be proactive. Ensure that all your lodgements are up-to-date, as the ATO are unlikely to entertain any negotiation with overdue lodgements.
A payment plan is an option if you are experiencing financial difficulties, and it allows your debt to be broken down into smaller amounts and spread over a fixed period of time. While your payment plan is in place, future payments and lodgements must be met in full, otherwise you risk the payment plan being defaulted. Depending on the size and history of defaults, payment plans will be automatically granted on the ATO’s Online Services.
If you are experiencing financial difficulty and have unpaid tax, contact your tax adviser to discuss your options.