Australian Audit Calls for Stronger ATO Small Business Debt Collection Targets
An independent audit of the Australian Taxation Office (ATO) is urging the agency to adopt measurable targets for reducing small business tax debt, concluding that the ATO’s current management of collectable debt is only “partly effective” as unpaid tax obligations continue to climb.
The performance audit, released by the Australian National Audit Office (ANAO), found that small businesses now account for more than two-thirds of Australia’s collectable tax debt, while the ATO lacks specific performance measures to track whether its collection efforts are improving outcomes.
Audit finds significant growth in small business tax debt
According to the ANAO, small business collectable tax debt increased by approximately 118 percent between the 2018-19 and 2024-25 fiscal years, growing by $19.4 billion during that period. Small businesses now owe $35.9 billion in collectable tax debt, representing 66.1 percent of the ATO’s total collectable debt portfolio.
The audit also highlighted broader concerns over Australia’s tax receivables. The ATO’s financial statements indicate there is a risk that nearly half of the country’s total tax debt, approximately $49.8 billion of $98.4 billion owed, may ultimately go uncollected.
The ANAO concluded that while the ATO has identified rising small business debt as an enterprise risk, it has not established measurable targets specifically aimed at reducing that debt.
Eight recommendations accepted by the ATO
The audit made eight recommendations, all of which the ATO accepted.
Among the most significant are recommendations that the agency:
- Establish a specific, measurable target for reducing small business collectable debt.
- Develop benchmarks to evaluate the effectiveness of debt recovery activities.
- Improve public reporting on debt collection performance.
- Make better use of internal data and analytics to evaluate taxpayer behavior and collection outcomes.
- Regularly assess the return on investment of debt recovery activities, including external collection agencies.
The ANAO noted that while the ATO collects extensive operational data, it is not fully utilizing those resources to measure payment behavior, response rates, debt outcomes, or the effectiveness of different collection strategies.
Collection actions range from reminders to insolvency proceedings
The report outlines the ATO’s graduated collection process for overdue tax liabilities.
Initial collection efforts typically include SMS reminders, letters, and other early engagement activities. If debts remain unpaid, the ATO may escalate to firmer enforcement actions such as:
- Garnishee notices
- Director penalty notices
- Formal warning letters
- Public disclosure of business tax debt
In more serious cases, stronger legal actions may include statutory demands, winding-up proceedings, and insolvency actions.
The audit observed that only a small percentage of taxpayer interactions currently involve these firmer or stronger enforcement measures, reflecting the agency’s resource constraints and prioritization decisions.
Pandemic policies continue to influence debt levels
The report attributes part of the debt growth to collection relief provided during the COVID-19 pandemic, natural disasters, and other economic disruptions.
During those periods, the ATO intentionally reduced collection activity to provide relief to struggling businesses. The audit suggests those policies, while necessary at the time, contributed to a significant buildup of outstanding tax debt that continues to challenge the agency today.
ATO Second Commissioner David Allen said preventing debt remains a priority because reducing outstanding balances lessens the need for more costly recovery actions later. He said the agency would consider all of the ANAO’s recommendations as part of its ongoing efforts to improve administration of Australia’s tax system.
