And how Broker.com.au has the solution for you
The era of COVID-era leniency is well and truly over. If your business has outstanding tax debt, the Australian Taxation Office is coming — and the consequences are more severe than many owners realise.
For two years, the Australian Taxation Office effectively hit pause. During the height of the COVID-19 pandemic, the ATO adopted a deliberately soft stance on debt collection — deferring payment plans, waiving interest charges, and standing down its enforcement machinery in recognition of the extraordinary economic stress businesses were facing. It was an unusual, arguably compassionate, period in the ATO’s history.
That period is over.
Since 2022, and accelerating sharply through 2023, 2024 and into 2025, the ATO has rebuilt and reinvigorated its debt collection operations with a focus and intensity not seen in decades. The agency is now openly signalling that it views accumulated tax debt — which blew out to record levels during the pandemic — as a serious threat to the integrity of the tax system and, notably, as unfair to the compliant businesses that kept paying on time.
For Australian small business owners carrying ATO debt, the landscape has changed dramatically. Here is what you need to know.
The Scale of the Problem
The ATO’s own figures tell the story. At the peak of the pandemic, collectable tax debt across Australia swelled to well over $50 billion — a figure that shocked even senior officials within the agency. While a significant portion of that has since been recovered, small business remains the cohort with the largest concentration of outstanding debt, particularly in the areas of GST, Pay As You Go (PAYG) withholding, and superannuation guarantee (SG) obligations.
The ATO has been explicit in its messaging: it considers business tax debt — especially PAYG and superannuation — to be money held in trust on behalf of employees and the public, and it treats non-payment of these obligations with particular seriousness.
The Interest Trap: GIC Is No Longer Tax Deductible
Here is where many small business owners are getting blindsided, and it deserves clear, unambiguous attention.
The General Interest Charge (GIC) — the penalty interest that accrues daily on unpaid tax debts — is currently running at approximately 11.38% per annum (for the quarter ending June 2025, though this rate adjusts quarterly and should be verified at ato.gov.au) – at Broker.com.au, we are hearing of some ATO rates being 14%+. The Shortfall Interest Charge (SIC), which applies where there has been a tax shortfall resulting from an amended assessment, runs at a lower rate, currently around 8.0% per annum.
These rates alone are punishing. But the truly sting in the tail — and one that has caught many business owners and their advisers off guard — is that the GIC is no longer tax deductible for businesses.
Until relatively recently, the GIC was deductible as a cost of doing business, which at least softened the blow somewhat. That changed following legislative amendments. For many businesses, this means the effective cost of carrying ATO debt is even higher than the headline rate suggests, because they cannot offset it against their taxable income. A business paying 11%+ on its ATO debt, with no deduction available, is facing a real after-tax cost that significantly exceeds what they might pay on a commercial loan, where interest generally remains deductible.
The SIC remains deductible in limited circumstances, but the GIC — the charge most commonly encountered on general tax debt — does not. If your accountant or bookkeeper hasn’t flagged this with you, it’s worth having that conversation immediately.
The practical implication: carrying ATO debt is dramatically more expensive than many business owners assume. Every month a debt sits unresolved is a month of non-deductible interest compounding at rates that rival credit cards.
Payment Plans: What to Expect
The ATO does offer payment arrangements for businesses that cannot pay their debt in full, and entering into one is generally preferable to doing nothing. However, business owners should have realistic expectations about what the ATO will and won’t accept.
For small businesses with debts up to around $100,000, the ATO’s online payment plan tools allow for self-service arrangements, typically structured over a period of up to 12 months. For larger or more complex debts, you will be dealing with ATO case officers who have discretion over terms — and who are now operating under instructions to push for faster resolution than was previously the case.
The days of comfortable 24 or 36-month payment plans being routinely approved for substantial debts are largely gone. The ATO’s current posture is to seek payment within the shortest reasonable timeframe, and it will typically require a financial disclosure — details of your business’s cash flow, assets, and liabilities — before agreeing to an extended arrangement on a significant debt.
Critically, GIC continues to accrue on the outstanding balance even while you’re on a payment plan. The non-deductibility issue discussed above applies throughout the life of that arrangement.
The issue with having to pay these large ATO debt amounts over 12 months can be brutal on cash flow. Having a business loan of the same dollar amount payable over even 3 years can be a huge difference in monthly repayments.
The Enforcement Arsenal: Understand What the ATO Can Do
Many small business owners significantly underestimate the powers available to the ATO. When it chooses to escalate, it can move quickly and with serious consequences.
Director Penalty Notices (DPNs): For unpaid PAYG withholding and superannuation guarantee obligations, the ATO can issue a Director Penalty Notice making company directors *personally liable* for the debt. This is not a threat; it is a legal mechanism the ATO uses regularly. Once a DPN is issued, directors have 21 days to either cause the company to pay the debt, place the company into voluntary administration, or appoint a liquidator. In some circumstances — where PAYG and SGC obligations were not reported within three months of the due date — the DPN is “lockdown,” meaning directors cannot escape personal liability even through administration or liquidation. Your home, personal savings and personal assets can be at risk.
Garnishee Notices: The ATO can issue a garnishee notice to third parties who hold money on your behalf — including your bank. Without warning, the ATO can instruct your bank to redirect funds from your accounts directly to the ATO. Businesses have discovered this when their accounts were swept while they had wages to pay or suppliers to settle. The reputational and operational damage can be severe.
Wind-Up Proceedings: The ATO is now one of the most active creditors initiating wind-up proceedings in Australian courts. It has publicly committed to using this mechanism more aggressively as a compliance tool, and the data shows it is following through. A winding-up application filed by the ATO will appear on public court records and can trigger cross-defaults in financing arrangements.
Credit Reporting of Tax Debts: Since 2019, the ATO has had the power to disclose business tax debts to credit reporting bureaus — and it is now actively using it. Business tax debts of $100,000 or more that are more than 90 days overdue and where the business is not “engaging” with the ATO to manage the debt are eligible for disclosure. A tax debt appearing on your credit file can affect your ability to secure finance, obtain trade credit, or win certain government contracts. The reputational impact extends beyond the ATO relationship.
What Business Owners Should Do Now
If your business has an outstanding ATO debt — whether it’s GST you haven’t caught up on, PAYG you deferred, or superannuation that’s fallen behind — the worst thing you can do is nothing.
Act before the ATO acts. The ATO distinguishes between businesses that proactively engage and those that ignore correspondence. Proactive engagement genuinely does result in better outcomes, including the possibility of interest remission (though this is harder to obtain than it once was).
Get professional advice immediately. A registered tax agent or tax debt specialist can negotiate with the ATO on your behalf, request interest remission, and structure arrangements that protect directors from personal liability exposure. This is not the time for a DIY approach.
Don’t let PAYG or super fall behind. These are the obligations that trigger DPNs and create personal liability for directors. Prioritise them above all others.
Understand the true cost. If your business has ATO, you will not be able to get a bank loan, either for the business or personally (eg, mortgage). And the interest on ATO debt is not tax deductible, a business loan is.
At Broker.com.au, we are helping businesses restructure this ATO debt into 3+ year terms, and sometimes at a lower rate than what the ATO is charging – all while being tax deductible.
Our next article will give a real life example of a client and how this particular issue impacted their business, and how we were able to find a solution to help.
