Insolvency specialist Malcolm Howell on how company tax debt becomes a personal crisis and what to do before it gets there.
If your business is carrying tax debt and you have been hoping the ATO would give you more time, the window just got shorter.
A new report from the Australian National Audit Office has found that small businesses account for $35.9 billion of the ATO’s $54.2 billion in collectable tax debt. The ANAO has recommended stronger debt collection measures, putting direct pressure on the ATO to accelerate recovery. At the same time, insolvency data shows June 2026 recorded the highest monthly insolvency total of the year so far, winding-up applications remain historically elevated, and ATO court recoveries continue to increase year on year.
For small business owners, the combination of those two trends, more aggressive ATO recovery action and rising insolvency rates, creates a specific and urgent risk that many are not fully aware of until it is too late to manage.
The scale of the problem
The ANAO findings put a precise number on what has been a growing concern in the small business community. Small businesses carry the majority of the ATO’s collectable debt, and the agency is now under formal pressure to do more to recover it.
Malcolm Howell, Partner at national insolvency firm Jirsch Sutherland and a dual-registered Liquidator and Bankruptcy Trustee, says business owners should read the ANAO report as a direct signal of what is coming.
“The ATO is under pressure to recover more outstanding tax debt, and it’s using all of the tools it has available. We’ve seen a significant increase in Director Penalty Notices, garnishee notices being issued and assets being frozen. If you’re carrying significant tax debt, now is the time to deal with it,” Howell said.
The tools Howell refers to are not theoretical. Director Penalty Notices, garnishee orders served on banks and debtors, and asset freezing are all active enforcement mechanisms the ATO is deploying with increasing frequency. Each carries consequences that extend beyond the business itself.
When company debt becomes personal
This is the part many small business owners do not see coming until it arrives.
Australian company law provides a degree of separation between business and personal liability, but that separation has limits. Director Penalty Notices are one of the most significant. When the ATO issues a DPN, it creates a mechanism for holding company directors personally liable for certain unpaid tax obligations, including PAYG withholding and superannuation guarantee charges.
“What starts as a company debt doesn’t necessarily stay a company debt. Once a DPN is issued, the personal risk increases significantly. Add personal guarantees into the mix and business owners can quickly find their own assets exposed,” Howell said.
The data from the Australian Financial Security Authority confirms this is not a theoretical risk. In May 2026, almost 28 per cent of people entering a personal insolvency had reported involvement in a business within the previous two to five years. Since July 2019, more than one in four people entering personal insolvency, 26.7 per cent, have reported prior business involvement.
“These figures reinforce what we’re seeing on the ground. Financial distress doesn’t always stop at the business, it increasingly flows through to the individual. For many small business owners, business and personal finances are closely intertwined. When tax debts continue to grow, personal guarantees are called on or DPNs are issued, the consequences can extend well beyond the business itself,” Howell said.
The perfect storm squeezing small business
The tax debt problem does not exist in isolation. Howell describes a set of cost pressures that are making it increasingly difficult for small businesses to stay current with their obligations, let alone reduce existing debt.
Rising rents, escalating operating costs, higher borrowing costs, payroll tax, land tax, and the recent introduction of Payday Super are all compressing margins across the small business sector.
“Land tax has become a major burden for many businesses, particularly in Victoria where we’ve seen significant increases in recent years. Combined with rising operating costs and the ATO’s debt recovery efforts, it’s creating a perfect storm for small businesses. They simply can’t get ahead,” Howell said.
The compounding effect of penalties and interest on unpaid tax debt makes the situation worse the longer it runs.
“Tax penalties and interest can be the killer. They bury businesses that may otherwise have survived,” he said.
Act before the ATO does
The clearest and most actionable message from Jirsch Sutherland is also the simplest: do not wait for the ATO to move first.
“We’re increasingly seeing businesses seek advice only after a DPN has been issued, a garnishee notice served or assets frozen. By then, many of the options that were available earlier have disappeared. The earlier business owners seek advice, the more options they’re likely to have. Don’t wait for the ATO to make the first move, act now,” Howell said.
Early engagement with the ATO, before enforcement action begins, opens options that close once the process starts. Payment plans, voluntary disclosures, and restructuring arrangements are all significantly more accessible before a DPN is issued than after.
Howell also raises a practical point that catches some directors off guard. The ATO sends Director Penalty Notices to the registered office address held by ASIC. If that address is outdated, the notice still takes effect from the date it was sent.
“A DPN sent to an old address doesn’t stop the clock. You can’t rely on the excuse that you didn’t receive it,” Howell said.
For small business owners carrying tax debt of any scale, the combination of a formal ANAO push for stronger ATO recovery action, rising insolvency rates, and the documented flow of business distress into personal financial exposure makes this a moment to act rather than wait. The options available today are likely to be fewer in six months.
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