Midway through 2024, the Australian Taxation Office (ATO) made it clear that it would be pulling out all the stops in its efforts to recover the huge amount of taxation debt owed by small businesses.

Among the total $54 billion tax debt book, as much as $35.6 billion is attributable to small businesses, many of which were offered leniency during the COVID-19 pandemic.

However, as recently as November last year, it was made clear that the ATO is considering it a priority to enforce the repayment of significant collectable debt owed by small businesses.

Some of the key measures being rolled out by the ATO to recover this debt include:

Enhanced Enforcement Actions

The ATO has made it clear that it will be adopting a more aggressive stance towards businesses that fail to engage with payment reminders.

Director Penalty Notices (DPNs) are among the measures being implemented, as well as the initiation of legal proceedings or the utilisation of garnishee orders to recover outstanding debts.

Should the ATO have to take these measures against your company, you, as a director, could become personally liable for the debts if they remain unpaid.

Disclosure to Credit Reporting Bureaus

If you think your small business’s tax debt will not affect your credit score, think again. Although there was leniency during the difficult COVID lockdown period, the ATO’s stance has shifted to one that’s far more aggressive.

Now it is encouraging compliance by disclosing tax debt information of non-compliant businesses to credit reporting agencies. This is aimed at prompting businesses to address their tax obligations to avoid having their credit ratings affected.

With a poor credit rating, it can become incredibly difficult for your business to get the loans it needs to grow and remain profitable.

Targeted Compliance Focus

One of the areas that the ATO has identified as being of particular concern is businesses that have diverted income for personal use and have misused the deductions and concessions system, thereby operating outside of the formal tax system.

The ATO will seek to crack down on those businesses engaging in such practices to close the small business tax gap, which stands at 12.6% compared to 4.2% for large companies.

If you need help sorting out your small business’s taxes, contact Infuse Advisors & Accountants now. We can help you ensure your business remains tax-compliant to avoid penalties.