The ATO’s Firmer Approach To Small Business Debt Collection

What the ANAO audit means for advisers and clients with ATO debt.

The recent Australian National Audit Office's (ANAO) review, and subsequent findings, as to the Australian Taxation Office's (ATO) management of small business collectable debt provides useful context for advisers with clients managing unpaid ATO liabilities. The ATO accepted all eight recommendations, signalling anticipated significant change to its debt management approach.

Parliament requested the review after small business collectable debt reached $35.9 billion in 2024–25, or 66.1 per cent of the ATO's total collectable debt. This was $19.4 billion higher than in 2018–19. The ATO had assessed the risk associated with this unpaid debt and unparalleled growth as outside tolerance and unlikely to return within tolerance in the near term.

In essence, the ANAO assessed the ATO's management of small business collectable debt as partly effective. Its recommendations addressed the ATO’s governance, accountability, transparency, taxpayer engagement and recovery performance.

The ATO's acceptance of all eight recommendations made by the ANAO indicates a commitment to strengthening its existing approach, furthering recent adaptations to a broader, firmer collection policy.

Advisers should anticipate clearer accountability, stronger performance measurement and more targeted interventions where ATO debts remain unpaid or taxpayers do not engage.

Why the findings matter for advisers

Unpaid tax liabilities may not be merely a cash-flow issue. They may indicate concerns about business viability, solvency, neglect of director duties and increasing risk of personal liability arising from potential director penalties associated with unpaid GST, PAYG withholding and superannuation liabilities.

Advisers are often the first to identify these warning signs and assess whether arrears reflect a temporary funding constraint or deeper structural difficulties. That role becomes more important as the ATO's collection approach becomes increasingly measured, accountable and data driven.

ATO debt collection interactions with small businesses increased from 4.1 million in 2018–19 to 17 million in 2024–25. These communications are part of treatment pathways intended to encourage engagement before escalation.

What the ANAO recommendations tell us about future ATO behaviour

Together, the accepted recommendations indicate a more structured and measurable approach to small business debt management, including: 

• clearer governance, accountability and public reporting;

• measurable targets and benchmarking for debt recovery;

• stronger assessment of taxpayer engagement and treatment outcomes; and

• improved monitoring and retraining of predictive models.

Advisers should expect increasingly targeted activity where taxpayers remain disengaged, repeatedly default on payment plans, allow debts to continue growing or continue to lodge statutory returns late.

The ATO’s approach to small business debt collection appears to have shifted towards greater accountability and firmer collection activity, with small business compliance and payment obligations taking on greater importance.

Expect firmer ATO collection activity

Where an ATO debt remains unpaid, firmer collection activity should be regarded as inevitable rather than merely possible. In such circumstances, early advice and appropriate action is essential.

Advisers should consider:

1. Confirm the position — reconcile the ATO accounts, identify each debt type, ensure all lodgements are current and obtain copies of relevant notices.

2. Identify urgent exposure — check for director penalty notices, garnishee notices, statutory demands, winding-up applications and disclosure warnings or other recovery action.

3. Prevent further deterioration — ensure ongoing obligations are met and further debt is not continuing to accumulate.

4. Assess viability and solvency — determine whether the business can meet current and future liabilities and repay the existing debt within a realistic period.

5. Escalate early — obtain advice where solvency, director liability or formal recovery action is a concern, including where payment plans are already in place, to assess whether they are suitable for resolving the financial distress.

The key message is that ATO debt should not be treated in isolation or deferred in the hope that collection activity will ease. Early engagement, current compliance and a realistic assessment of the client’s financial position provide the best opportunity to preserve available options and reduce further business and personal exposure.