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A common misconception among taxpayers is that the ATO can be negotiated with to reduce or “write off” tax debt. While this perception is widespread, it does not reflect the ATO’s legislative powers or current administrative practice.
This article outlines the correct position supported by ATO policy, IGTO analysis, and the latest available public data, and provides guidance on realistic pathways for clients facing significant tax liabilities.
1. ATO Debt “Release” Is Not Available to Businesses
The ATO’s “Release from Tax Debt” mechanism (s.340-5 of Schedule 1 to the Taxation Administration Act 1953) is strictly limited to individual taxpayers and deceased estates.
The ATO explicitly states that:
- Companies, trusts and partnerships cannot apply for release from their tax debts.
- Debt release applies only to certain liabilities, excluding GST, SGC, PAYG withholding, DPN-related liabilities, and others.
Therefore, the principal amount of a business tax debt cannot be forgiven under the ATO’s hardship provisions.
2. Even for Individuals, Release Is Rare and Narrowly Applied
The Inspector-General of Taxation and Taxation Ombudsman (IGTO) published the most comprehensive data available on debt-release outcomes (FY2017–FY2020).
Annual outcomes
- Applications received: 3,896–8,279
- Applications approved: 1,246–3,065
- Success rate: 29–37%
- Amounts released: $29.6m–$68.5m per year
Proportion of total tax debt
- In FY2020, the amount permanently released was 0.09% of total collectable debt.
Trend
- Release amounts and success rates have declined year-on-year.
- IGTO annual reports (to FY2023) indicate the ATO has further tightened its approach.
- Post-2020 figures are not separately published, suggesting release remains a minuscule component of ATO debt management.
Practical takeaway
Release is a hardship mechanism of last resort for individuals. It is not a commercial debt-reduction option and not accessible to business entities.
3. What Relief Is Available for Businesses?
The ATO’s powers relating to business entities are limited to the following:
(a) Payment Arrangements
Flexible or customised payment plans remain common, but acceptance depends on:
- Full lodgement history
- Demonstrated viability
- Ongoing compliance
(b) Interest (GIC) Remission
Possible where:
- Delays were outside the taxpayer’s control
- Delays were ATO-induced
- Payment would cause serious hardship
Recent trend: IGTO reports show a sharp rise in complaints about inconsistent GIC remission decisions (134+ complaints in 2025 alone).
(c) Penalty Remission
Available where:
- Reasonable care was taken
- Compliance history is strong
- The taxpayer engages early with the ATO
(d) Temporary Deferrals / Lodgement Support
Available during natural disasters or exceptional circumstances.
None of these options allow for principal tax debt reduction.
4. The Broader Context: SME Tax Debt Is Growing Rapidly
Recent analysis (2024–2025) shows:
- ATO collectable debt: $52.8 billion (30 June 2024)
- Small businesses account for more than two-thirds of this figure
- The ATO’s impairment allowance (expected uncollectable portion) has surged to over $40 billion
- National debt helplines report 60%+ of calls in 2025 relate to ATO debt
This illustrates increasing pressure on SMEs and a more assertive ATO collection stance.
5. What Should Advisors Recommend Instead of “Negotiating a Write-Down”?
- Business Performance Improvement
Margins, pricing, cost control, productivity, forecasting.
- Cash-Flow Restructuring
Modelling capacity to service payment plans while maintaining working capital.
- Engagement with the ATO
Sustainable payment plans; interest and penalty remission where justifiable.
- Formal Restructuring Options
Where liabilities exceed serviceability, directors should consider:
- Small Business Restructure (SBR)
- Voluntary Administration
- Deed of Company Arrangement (DOCA)
These mechanisms can compromise debts, protect directors, and provide certainty, unlike informal ATO negotiation which cannot reduce principal tax debt.
Clients often approach ATO debt with the belief that “negotiating a write-off” is possible. The legislation, ATO policy, and historical data make it clear:
- Principal debt forgiveness is not available to businesses.
- Debt release for individuals is rare, tightly controlled, and accounts for less than 0.1% of receivables.
- The only way to reducing business tax liabilities involves formal restructuring mechanisms, not informal negotiation.
Accountants and advisors play a critical role in helping clients understand these realities early and guiding them toward structured, sustainable solutions before ATO enforcement escalates.
If you have a client facing financial difficulties and needs to turn things around, contact us today to set up a meeting. We’re experts in financial restructuring and in the other turnaround strategies needed to get a business back on track.