Australia Tax Update: ATO Hardens Small Business Debt Collection as Complaints to the Tax Ombudsman Soar 180 Per Cent

TITLE: ATO Small Business Debt Collection: What Rising Complaints Mean for Your Business

Australia’s small businesses face firmer ATO debt collection as overdue balances mount and complaints to the Tax Ombudsman rise. The Ombudsman received 2,376 complaints about the ATO in the six months to September 2026: 74% more than a year earlier and 180% more than two years earlier. A parliamentary inquiry is now examining how the ATO manages small business debt.

Here’s what the figures mean for your business, and what you can do before a missed payment becomes a bigger problem.

Know what you owe before the ATO contacts you

In 2024–25, small businesses owed $35.9 billion of the ATO’s $54.2 billion in collectable tax debt—66.1% of the total, according to the Australian National Audit Office. The debt has grown by $19.4 billion, or 118%, since 2018–19. Around 1.34 million small businesses had debt, averaging $26,797 each.

ATO Commissioner Rob Heferen has described collecting the debt as a “substantial” task, saying the ATO cannot ignore its legal obligations as Australia’s principal tax collector. For you, the practical message is simple: check your ATO accounts and notices regularly. Tax liabilities often first appear at predictable pressure points: PAYG instalments arriving on top of the prior year’s tax bill, hiring staff for the first time, or turnover rising faster than cash.

Expect less patience and more direct action

Yahoo Finance Australia reported that Sydney mortgage broker Son Pham had seen a client contacted over a reportedly waived $50,000 debt dating back about a decade. “His business was about to go bankrupt… at the time they waived it but now he’s doing so well they’re like; you owed us $50,000 back then, we want it now,” Pham said. He also described another client facing a garnishee notice, which allowed money to be taken directly from accounts. Pham said the ATO had lately shown “heavy handed tactics”, with some clients not being offered payment plan options.

These are reported cases, not proof that every old debt will be revived or that payment plans are unavailable. Still, keep your records and respond promptly to ATO contact. The ATO’s firmer actions can include:

• Director penalty notices: directors may become personally liable for unpaid PAYG withholding, GST and superannuation, with 21 days to act. Lockdown penalties can apply where obligations were reported more than three months late.
• Garnishee notices: money may be taken from bank accounts or from people who owe money to your business.
• Credit reporting: business tax debts exceeding $100,000 and overdue by more than 90 days may be disclosed after a 14-day notice period.
• Statutory demands and wind-up applications: unpaid company debts can escalate to court action seeking to wind up the company.

Interest adds pressure. The general interest charge (GIC) is 11.51% for October–December 2026 and compounds daily. Since 1 July 2025, GIC is no longer tax deductible, so the business bears its full cost. Cash-flow pressures can also coincide with new obligations, including PayDay Super.

Follow the review of how the ATO collects

The Ombudsman’s latest report found that debt collection and payment matters each represented 19% of its complaint investigations. In 63% of debt collection-related complaints, the Ombudsman found the ATO acted reasonably, down nine percentage points from the same period last year. The ATO reported receiving 1,358 complaints over the same period; the Ombudsman’s total includes cases resolved without ATO involvement and matters relating to the Tax Practitioners Board or state taxes.

Ombudsman Ruth Owen said some taxpayers struggle with debt collection and interest charges, which can make amounts “impossible to pay back”. She has also questioned whether some treatment of people who owe tax is fair and reasonable. The ATO has agreed to all recommendations from her review of GIC remission, including exploring interest-free payment plans for eligible taxpayers. Implementation details are still being worked through.

A parliamentary inquiry into the ATO’s management of small business collectable debt is examining the balance between firm collection and fair treatment. Submissions closed in October. In its submission to the inquiry, COSBOA argued that debt often signals cash-flow difficulty rather than deliberate avoidance. It called for earlier engagement, workable payment plans, fair assessment before firmer action, and a clear final position on aged debts placed on hold.

An ATO sentiment report also found that 87% of surveyed accountants thought enforcement had become more aggressive, while seven in ten had clients contacted for debt recovery, with construction and trades clients most likely to be contacted. One practitioner wrote that the ATO was operating “on a ‘guilty until proven innocent’ basis”. These findings describe practitioners’ experiences, not a ruling on every case. The inquiry’s outcome may help clarify how collection practices develop.

Act early to keep interest and risk down

Take these steps now:

1. Check your ATO position. Review balances, lodgements and notices before a reminder arrives.
2. Set aside tax money. Keep funds for BAS and PAYG obligations separate from operating cash.
3. Speak up after a missed payment. Contact the ATO or your tax professional early. A payment plan may help, and arrangements can be adjusted if circumstances change.
4. Know what can be requested. The Ombudsman notes, for example, that the ATO has no legislative power to release superannuation guarantee charge.
5. Keep old records. Preserve correspondence and payment evidence in case an aged or previously paused debt resurfaces.
6. Raise concerns if needed. If you believe the ATO has acted unfairly, you can contact the Tax Ombudsman.

For earlier context on a separate ATO interest measure, see our 20 October update on family trust tax liabilities.

The inquiry remains ongoing, and the Ombudsman is working with the ATO on its agreed GIC recommendations. In the meantime, accurate records and early engagement give you a clearer path through a difficult cash-flow period.

Sterlinx Global operates as a Global Tax Compliance Suite. We support Australian entities with structured bookkeeping, tax calculations, GST and other compliance filings, payroll and year-end accounts. You provide your business data; we manage compliance delivery on an ongoing basis. Contact us to discuss compliance support for your business.

How much tax debt do Australian small businesses owe the ATO?

Small businesses owed $35.9 billion of the ATO’s $54.2 billion in collectable debt in 2024–25. Around 1.34 million small businesses held debt, averaging $26,797 each.

What interest does the ATO charge on unpaid tax debt?

The GIC is 11.51% for the October–December 2026 quarter and compounds daily. It is no longer tax deductible, so the business bears the full cost.