ATO Faces $35.9B Small Business Debt Challenge After Audit Review
Synopsis
The tax office plans to establish new debt reduction targets following an audit that found its existing strategy only partly effective in addressing mounting small business tax liabilities.
The Australian Taxation Office (ATO) will develop new performance indicators to deal with a rise in tax debt for small businesses, after an independent audit confirmed its existing system for managing the debt only partially succeeded, with collectable debt totalling up to A$35.9 billion.
The review by the Australian National Audit Office (ANAO) found that small businesses were responsible for 66.1% of the AUD54.2 billion of collectable tax debt across Australia as of the end of 2024-25.
Although the ATO increased debt recovery efforts during the pandemic, the auditors reported that no targets were set on the volume of debts collected to check whether the organisation was successful in rehabilitating small businesses facing debt.
Enhanced performance measures recommended by audit
The ANAO observed that while the ATO has put measures in place for governance and debt recovery, the collection of collectable debt among small businesses is partly effective.
As part of eight recommendations, the audit suggests that quantifiable measures should be implemented to reduce unjust debt, along with enhanced reporting and improved use of data in collection.
All recommendations have been accepted by the ATO, and new performance targets are to be introduced to reduce and track small business tax debt.
Debt has doubled Since 2019
The report revealed a 118% (A$19.4 billion) increase in small business tax debt from 2018-19. It noted that this jump has resulted mainly from temporarily suspended debt recovery processes during the COVID-19 pandemic and associated economic slowdowns, before resuming business as usual.
With some 5.7 million reminder actions against small businesses carried out in 2024-25 by the ATO, the ANAO reported that 0.5% of small business ATO encounters represented debt collection resulting from more stringent actions.
Persistent challenge
The review revealed 39,352 small businesses have been disconnected, owing a combined A$11.3 billion in outstanding tax debts, a situation the auditors described as a sign of a growing collection and payment challenge.
The ATO’s 2025-26 Corporate Plan features debt collection and improvement in payment performance as core objectives.
According to the ANAO, implementing measured goals and transparent reporting will lead to more efficient oversight of one of Australia’s largest tax debt holdings and better tax debt administration for all small businesses.
Source: Smart Company
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Pooja Malik is a business journalist with over six years of experience covering startups, entrepreneurship, and emerging trends. She has previously worked with leading media platforms such as YourStory Media and BW BusinessWorld, where she reported on business, policy, and market developments. Currently, she serves as Editor at The Inspirepreneur Magazine, where she writes and edits stories across business, lifestyle, and travel, with a focus on clarity, accuracy, and reader relevance.
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