Understanding the Growing ATO Tax Debt and How Your Client’s Business Can Stay Ahead

As of 30 June 2024, the Australian Taxation Office (ATO) reported that total collectable tax debt had reached $52.8 billion, a figure that has climbed significantly since $34.1 billion in 2020. This steep rise in outstanding tax obligations reflects a complex post-pandemic economic landscape, characterised by deferred payments, increased enforcement actions, and growing financial pressure on small to medium-sized enterprises (SMEs).

While the official figure for 30 June 2025 has not yet been released, estimates suggest the ATO’s total debt book has now swelled past $100 billion, with insolvencies hitting record levels. The ATO has signalled that it will be stepping up its debt collection activities substantially in response to this surge. This includes heightened enforcement efforts and stricter scrutiny of non-compliant businesses.

Several Contributing Factors Include:

• High Interest Rates: The ATO’s General Interest Charge (GIC) is currently above 11% per annum, making tax debt an expensive liability for businesses.
• Reduced Tax Relief: From 1 July 2025, interest charges on ATO payment plans are no longer tax-deductible, increasing the after-tax cost of unpaid tax.
• Tougher Enforcement: The ATO is stepping up its use of garnishee notices, Director Penalty Notices (DPNs), and legal recovery action to recoup unpaid debts.
• SMEs Under Pressure: Small businesses who owe around two-thirds of all collectable tax debt are particularly vulnerable due to rising operational costs and cash flow stress.

Steps Your Clients Can Take to Stay Viable and Profitable

1. Know Your Numbers
   Understanding where your client’s business stands financially is the first step to regaining control. Regularly review financial reports and know exactly what is owed and when.
2. Perform a Break-Even Analysis
   A break-even analysis helps your client identify the minimum sales needed to cover costs. This gives clarity on pricing, expense management, and profitability targets.
3. Develop a Cash Flow Forecast
   Projecting cash inflows and outflows over time helps your client identify periods of cash shortage, enabling proactive decision-making rather than reactive crisis management.
4. Check Compliance
   Ensure your client is meeting obligations with BAS lodgements, Superannuation Guarantee Contributions (SGC), and Workers Compensation. Non-compliance not only attracts penalties but also adds to ATO debt.
5. Build a Simple Financial Plan
   Your client doesn’t need a 100-page document, but they do need a clear, actionable plan. Set financial goals, review them monthly, and adjust where necessary.
6. Understand That Failing to Plan Is Planning to Fail
   Without structure, accountability, and oversight, financial issues can snowball quickly. A little planning today could prevent a crisis tomorrow.

ATO debt is growing at an unprecedented rate, and so is the pressure on Australian businesses. With the loss of tax deductibility on interest charges now in effect and insolvencies are increasing, the financial landscape is tougher than ever.

We know that many businesses are overwhelmed and underprepared. If your clients are unsure of their financial position, now is the time to take control.

Don’t wait until it’s too late. Know the numbers. Make a plan. Stay compliant.

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.