by John Storey, Tax Counsel, The Tax Institute
The Tax Institute outlines new ATO debt enforcement measures, risks, and practical steps for SMEs to stay compliant and manage obligations effectively.
Australia’s tax landscape is shifting. In his keynote address at this year’s Tax Summit, Commissioner of Taxation Rob Heferen signalled a renewed focus on debt collection, corporate transparency, and the adoption of technology to better manage Australia’s $50 billion tax debt book. For small and medium-sized enterprises (SMEs), these developments bring both opportunities and risks.
At The Tax Institute, we welcome the Commissioner’s position that “those who can pay, must pay on time.” However, we also recognise that the reality for many SMEs is far more complex.
During the pandemic, the Australian Taxation Office (ATO) adopted a relatively light touch in dealing with taxpayers who fell behind on their obligations. Many businesses may have grown accustomed to this approach, particularly when faced with unforeseen challenges or economic uncertainty.
Now, as the ATO shifts to a firmer enforcement stance, there is understandable concern that some SMEs, still recovering from the global pandemic’s impacts or struggling with high operational costs, may find themselves under significant pressure.
The challenges for SMEs under the new enforcement measures
The ATO’s focus on the ‘tax gap’, the difference between the tax that should be paid and the amount actually collected, has profound implications for small businesses. The latest figures show that SMEs account for the largest share of the tax gap, which was reported as approximately $17.7 billion in 2021-22. This statistical reality suggests that as the ATO intensifies collection efforts, small businesses are likely to bear the brunt.
One of the most consequential tools in the ATO’s debt recovery arsenal is the Director Penalty Notice (DPN). DPNs can impose personal liability on company directors for certain unpaid taxes, often targeting SMEs where the owners’ personal and business finances are closely intertwined.
The stakes are high: personal assets, including homes, may be at risk if a business is unable to meet its obligations.
Practical steps for SMEs
Amid this evolving landscape, the role of tax practitioners is more critical than ever. The Commissioner’s address made it clear that engagement matters: taxpayers who proactively engage with the ATO are treated more favourably than those who ignore their obligations.
For SMEs struggling to lodge or pay on time, the first step should be to consult with a trusted Chartered Tax Adviser (CTA) and consider initiating dialogue with the ATO. Early engagement can help secure manageable payment plans and potentially mitigate penalties.
Timely and transparent communication is crucial; waiting until enforcement action is underway can significantly limit the options available to a potentially struggling business.
Corporate transparency: New obligations, new risks
This all speaks to a notable trend in Australian tax administration – the push for greater corporate transparency. This has been evidenced by a raft of new reporting requirements imposed on Australian businesses designed to encourage transparency.
These new reporting requirements are partly to help identify non-compliance but there is also has a reputational dimension. Public scrutiny in the age of social media means that businesses found to be underpaying tax, or engaging in aggressive tax minimisation, may face an enhanced risk of reputational damage in addition to regulatory consequences.
Compliance is no longer solely a legal issue; it is increasingly a matter of reputational management.
The evolving role of tax practitioners
For tax advisers, the current environment presents both challenges and opportunities. Compliance requirements are more complex than ever, placing SMEs under significant pressure. Practitioners must navigate not only intricate tax rules but also a regulatory environment increasingly influenced by technology. Tax practitioners are today increasingly seen as “complexity brokers”.
The rise of AI in tax administration – even by the ATO – is enabling faster detection of non-compliance and sharper targeting of debt collection, meaning businesses have less room for error. At the same time, these technologies create opportunities for advisers and SMEs to strengthen compliance processes, reduce risk, and manage obligations more efficiently.
While AI creates new opportunities to strengthen compliance, manage risk, and reduce debt, it can also compound the challenges for businesses that fail to stay compliant or meet their obligations.
This complexity amplifies the value of trusted advisers. SMEs are more dependent than ever on professionals who can guide them through compliance obligations, negotiate effectively with the ATO, and advise on strategic financial planning.
The Tax Institute is focused on equipping practitioners with the skills and knowledge they need to meet these challenges head-on, through its designation and training programs.
Real-world impacts on SMEs
Feedback from practitioners on the ground paints a clear picture: the ATO is taking a firmer stance. Payment plans are harder to secure, garnishee notices and DPNs are being issued more promptly, and remission of general interest charges (GICs) is less accessible. Debts previously on hold are increasingly offset against expected refunds, often catching businesses by surprise.
These measures serve a legitimate goal – to secure the revenue needed to fund essential services – but for SMEs already struggling to manage their cash flow, this can pose a challenge. Proactive engagement with the ATO, supported by expert advice, can make the difference between managing a tax debt and being overwhelmed by it.
The key takeaway for business owners is simple: Australia’s tax environment is tightening. SMEs that act early, prepare well and draw on the right advice are best placed to stay resilient and positioned for growth.
This content was authored by The Tax Institute and is not produced by or on behalf of Dynamic Business.
John Storey is The Tax Institute’s Tax Counsel, with more than two decades’ experience as a tax lawyer, business leader, and policy adviser.
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