For the last few years the ATO played the patient creditor. During and after the pandemic it paused a lot of active debt collection, let interest quietly accrue, and gave businesses room to recover. That period is over. The ATO has been clear that it is returning to firmer, faster action, and with collectable tax debt now past $50 billion, small business is squarely in its sights.
If your business is behind on GST, PAYG withholding, or super, the risk in 2026 is not a polite reminder letter. It is a Director Penalty Notice that makes you personally liable, your debt disclosed to credit reporting bureaus, or a garnishee that pulls money straight out of your bank account. I am Mina Baselyous, CPA and Chartered Tax Adviser at Pinnacle Accounting & Advisory, and this is what every Melbourne business owner needs to understand right now.
Why the leniency is ending
The numbers tell the story. Collectable tax debt has climbed past $50 billion, and the ATO has openly said it can no longer treat unpaid tax as an interest-free loan. It has also flagged that the days of passive collection are done: businesses that do not engage, particularly on unpaid GST, PAYG withholding, or employee super, should expect it to move more quickly to firmer action.
This is not a threat aimed only at businesses that ignore the ATO entirely. The support is still there for those who ask for it: as at the end of June 2025 the ATO had more than 655,000 payment plans in place covering roughly $11.7 billion of debt. The dividing line is engagement. Engage and there are options. Go quiet and the tools below come out.
What firmer action actually looks like now
Director Penalty Notices
A Director Penalty Notice (DPN) makes a company director personally liable for the company’s unpaid PAYG withholding, GST, and super guarantee charge. It cuts straight through the corporate veil, and the ATO has ramped up how often it issues them. If you receive one, you generally have just 21 days from the date on the notice to act, and whether you have any escape route at all depends on whether the company lodged its BAS and statements on time. For the full mechanics, including the critical difference between a lockdown and a non-lockdown DPN, read our detailed guide on the ATO Director Penalty Notice and what every director must know.
Disclosure of business tax debts to credit bureaus
This is the tool many owners have not heard of, and it can be the most damaging. The ATO can report your business tax debt to credit reporting bureaus where you have an ABN, you owe $100,000 or more that is overdue by more than 90 days, and you are not engaging with the ATO to manage it. Before it reports, the ATO issues an intent-to-disclose notice, and you have 28 days to pay or enter an appropriate payment arrangement to stop it. See the ATO’s guidance on the disclosure of business tax debts.
Once a debt lands on your credit file, the consequences are commercial and immediate. Your ability to obtain finance can dry up, and suppliers who credit-check you may tighten terms or walk away. For many businesses, losing access to finance is more dangerous than the tax debt itself.
Garnishee notices
A garnishee notice lets the ATO recover a debt by directing a third party who holds money for you, most often your bank, to pay it straight to the ATO. It can also be issued to customers who owe you money or to a merchant facility. The ATO generally uses garnishees when other attempts to resolve the debt have failed, but for a business already tight on cash, having funds redirected without warning can be the tipping point.
Worried about an ATO debt before it turns into firmer action?
At Pinnacle Accounting & Advisory, we help Melbourne business owners get ahead of ATO debt, negotiate realistic payment plans, and protect directors from personal liability. 81 5-Star Google Reviews. Book a consultation with Mina before the ATO makes the decision for you.
Book a Consultation →The interest sting: carrying an ATO debt just got more expensive
Even if the ATO takes no direct action, the cost of sitting on a debt has jumped. The general interest charge (GIC) is set each quarter, currently sits above 11 per cent a year, and compounds daily. That alone makes an unpaid tax debt one of the most expensive forms of finance a business can carry.
The bigger change is that the deduction is gone. From 1 July 2025, GIC and shortfall interest charge (SIC) are no longer tax deductible, regardless of which income year the underlying debt relates to. Previously you could at least claim the interest as a deduction, softening the blow. Now you pay the full, compounding cost with no tax offset, which makes leaving an ATO debt to accrue a far worse decision than it was even a year ago.
Payment plans and why engaging early matters
The single most important thing you can do is engage before the ATO escalates. A payment plan is still available to most businesses that cannot pay in full, and entering one is often enough to stop a debt being disclosed to credit bureaus and to keep firmer action off the table. The catch is that engagement has to happen before, not after, the ATO acts. A director who negotiates a plan the week a debt falls due is in a completely different position to one who waits for a Director Penalty Notice to arrive.
Proactive cash flow management is what keeps you out of this territory in the first place. Our Virtual CFO service monitors your ATO position and cash flow through the year, so tax obligations are planned for rather than discovered when the money is not there.
Watch: the ATO is coming after directors in 2026
Prefer to watch rather than read? Mina explains how Director Penalty Notices work and what directors must do to protect themselves in this BusiHealth episode:
What business owners must do now
- Lodge everything on time, even if you cannot pay. Lodging on time is what keeps a DPN in the non-lockdown category where you still have options.
- Never treat PAYG withholding or super as working capital. These are the obligations the ATO pursues hardest, because the money was never yours.
- If a debt is building, engage first. Contact the ATO or your adviser and get a payment plan in place before the debt is disclosed or a notice is issued.
- Watch the $100,000 line. If your business tax debt is heading toward $100,000 and ageing past 90 days, act before the disclosure rules bite.
- Get advice the moment cash flow tightens, not when the notice arrives. Early intervention gives you the most options and the lowest cost.
Frequently Asked Questions
Is the ATO really chasing tax debts harder in 2026?
Yes. After pausing much of its active debt collection during the pandemic, the ATO has returned to firmer, faster action as collectable tax debt passed $50 billion. It has said businesses that do not engage, especially on GST, PAYG withholding, and super, can expect quicker use of Director Penalty Notices, garnishees, and debt disclosure.
When can the ATO report my business tax debt to credit bureaus?
The ATO can disclose a business tax debt to credit reporting bureaus if you have an ABN, you owe $100,000 or more overdue by more than 90 days, and you are not engaging to manage the debt. It first issues an intent-to-disclose notice, and you have 28 days to pay or enter a payment arrangement to prevent the disclosure.
Is interest on ATO debt still tax deductible?
No. From 1 July 2025, the general interest charge and shortfall interest charge are no longer tax deductible, regardless of which income year the debt relates to. The GIC also compounds daily and is currently above 11 per cent a year, so carrying an ATO debt is now significantly more expensive than it used to be.
Can I still get a payment plan with the ATO?
Yes. Payment plans remain available to most businesses that cannot pay in full, and the ATO had more than 655,000 in place as at June 2025. Entering an appropriate payment arrangement is often enough to stop a debt being disclosed to credit bureaus and to keep firmer action off the table, provided you act before the ATO escalates.
What should I do if I have already received a notice from the ATO?
Act immediately and get advice the same day. Deadlines are strict: a Director Penalty Notice generally gives you only 21 days from the date on the notice, and an intent-to-disclose notice gives you 28 days. Do not ignore it, and do not assume a second reminder is coming. The earlier you engage, the more options you have.
Frequently Asked Questions
What is a director penalty notice?
A director penalty notice (DPN) is a notice from the ATO that can make a company director personally liable for the company’s unpaid PAYG withholding, GST and super guarantee. It is one of the ATO’s most serious debt-recovery tools and should never be ignored.
How is the ATO stepping up debt collection in 2026?
The ATO has resumed firmer debt recovery after the pandemic pause, including issuing more director penalty notices, disclosing business tax debts to credit reporting agencies, and applying garnishee notices. Businesses with tax debts should engage early rather than wait to be chased.
What should I do if I receive a director penalty notice?
Act immediately and get advice. Depending on the type of notice and timing, options may include paying the debt, entering a payment arrangement, or in some cases appointing an administrator or liquidator. Some options disappear after 21 days, so speed genuinely matters.
Can I avoid personal liability for company tax debts?
The best protection is lodging on time and paying or arranging PAYG, GST and super by the due dates, because lodging on time preserves certain defences. Once a debt is overdue and unreported, directors face far greater personal exposure under the DPN rules.
General Advice Disclaimer: The information in this article is general in nature and does not constitute personal financial, tax, or legal advice. It has been prepared without taking into account your personal objectives, financial situation, or needs. Before acting on anything in this article, consider its appropriateness to your circumstances and seek advice from a registered tax adviser or CPA. Liability limited by a scheme approved under Professional Standards Legislation.
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