Interest on ATO debt is sitting at around 11 per cent and is no longer tax deductible. Son Pham, Managing Director of Rethink Financing, says the ATO’s approach to collection has shifted, and business owners who stay quiet are taking a serious risk.
I’ve seen the ATO chase a debt from 10 years ago. I’ve seen garnishee action leave business bank accounts frozen.
Interest rates tend to dominate the conversation about the pressure on business owners right now. But in this environment, I think an outstanding ATO debt can have far more impact on a business than interest rates do.
Here’s what’s at stake.
The cost of carrying tax debt has gone up
From 1 July 2025, the General Interest Charge (GIC) is no longer tax deductible.
Interest on outstanding ATO debt is now around 11 per cent. The combination of high interest and non-deductibility is putting significant pressure on clients who are struggling to make repayments.
The ATO has historically been flexible with payment arrangements. That flexibility shouldn’t be taken for granted.
A poor repayment history may make the ATO less willing to offer extended payment arrangements. And if the ATO considers a taxpayer to have a strong asset position, it may require the debt to be paid as a lump sum.
In some cases, that can mean selling assets to clear the tax debt.
We are also seeing the ATO pursue previously written-off debts where it identifies that a taxpayer now has significant assets or income.
A debt you thought was behind you may not be.
The ATO can go straight to your bank
The ATO can issue garnishee notices to banks, allowing it to recover funds directly from bank accounts.
We have seen this result in business accounts being frozen, or funds being redirected to the ATO.
The ATO also has the power to wind up a company where tax debts remain unpaid.
This can be particularly serious for business owners, because a winding-up can disrupt the ability to pay employee wages, business loans, suppliers and other ongoing business expenses.
Lenders take ATO debt seriously, and they generally want it paid before doing a deal. An outstanding tax debt can stand between a business and the finance it needs.
Don’t ignore it
My message to business owners is simple: do not ignore outstanding ATO debt.
If you are struggling to meet your tax obligations, engage with your accountant, your broker and the ATO early to understand your options, before enforcement action is taken.
A broker may be able to help you release equity to pay down the ATO debt before it escalates.
This article is general information only and is not tax or financial advice. Speak to a qualified professional about your own circumstances before acting on anything here.