ATO Debt in 2026: What’s Changed for Small Businesses and What to Do Now

Small business tax debt has more than doubled in six years, and the ATO is under pressure to bring it down. At the same time, interest on unpaid tax has become more expensive, both because the rate has risen and because it’s no longer tax deductible.

If your business owes the ATO money, or is falling behind on BAS and super, here’s what has changed in 2026, what it means in dollars, and the practical options available before collection action escalates.

The numbers: small business tax debt has more than doubled

In July 2026 the Australian National Audit Office (ANAO) published its audit of how the ATO manages small business tax debt. The headline figure: small businesses owed $35.9 billion in collectable debt, an increase of 118% between 2018–19 and 2024–25.

The audit also found that around 1.34 million small businesses owed the ATO money in 2024–25, with an average collectable debt of about $26,800 each. Small businesses account for roughly two-thirds (66.1%) of all collectable tax debt in Australia.

The ANAO rated the ATO’s approach as only partly effective and recommended it set measurable targets for reducing the volume of small business debt, not just the debt ratio. The ATO agreed. For business owners, the direction is clear: expect more contact, more follow-up and less tolerance for debts that are left unmanaged.

Change 1: ATO interest now costs more than it looks

The general interest charge (GIC) is the interest the ATO applies to unpaid tax. It’s calculated daily and compounds. The rate is set every quarter, and it has moved up over the past year:

The bigger change is to its tax treatment. For GIC and shortfall interest charge (SIC) incurred on or after 1 July 2025, businesses can no longer claim a tax deduction. That applies even when the underlying debt is from an earlier year.

Here’s what that means in practice. For a company paying tax at 25%, a deductible 11.5% charge used to cost roughly 8.6% after tax. Now the full 11.5% comes straight out of profit. On a $100,000 ATO debt left unpaid for a year, that’s around $11,500 in interest, compounding, with no tax offset. You can run your own numbers with our ATO debt cost calculator.

One upside: if the ATO later agrees to remit (waive) GIC incurred after 1 July 2025, the remitted amount doesn’t have to be counted as income. It’s worth asking your accountant whether a remission request is realistic, particularly if the debt arose from circumstances outside your control.

Change 2: tax debts can appear on your business credit file

The ATO can report a business’s tax debt to credit reporting bureaus. It may do so when all of these apply:

• The business has an ABN and isn’t an excluded entity (such as a registered charity, complying super fund, deductible gift recipient or government entity).
• At least $100,000 is overdue by more than 90 days.
• The business isn’t actively engaging with the ATO to manage the debt, for example through a payment plan, an objection or a review.
• There’s no active Tax Ombudsman complaint about the proposed disclosure.

Before reporting, the ATO sends a written notice and gives the business 28 days to act. Once a tax debt is on a business credit file, lenders, suppliers and landlords can see it. That can make it harder to get finance, trade credit or a lease at the moment you most need them.

The key point is that engaging with the ATO, even with a modest payment plan, generally keeps a business out of this process.

Change 3: firmer collection action

The ANAO report lists the tools the ATO uses on overdue debt. These include firmer action warning letters, disclosure to credit bureaus, garnishee notices (which let the ATO collect money owed to you directly from your bank or customers), director penalty notices, and wind-up proceedings.

Director penalty notices deserve particular attention. They can make company directors personally liable for unpaid PAYG withholding, GST and superannuation guarantee. If those amounts are reported late, directors can lose some of the ways they would otherwise have to avoid personal liability. Keeping lodgements up to date, even when you can’t pay in full, protects your position.

What to do now: five practical steps

1. Lodge everything on time, even if you can’t pay. Late lodgement makes every other problem worse, particularly for directors.
2. Engage early. A payment plan the ATO agrees to generally protects you from credit reporting and firmer action while you stick to it. Our guide to ATO payment plans explains how they work.
3. Compare the real cost of each option. With GIC at 11.5% and no longer deductible, the gap between ATO interest and some finance options has narrowed. Our free ATO debt cost calculator shows what your debt is costing you each day and compares a payment plan with a business loan. Property-backed business loans can be considerably cheaper. Unsecured cash flow loans usually cost more than GIC, but can still make sense to stop enforcement, protect your credit file or free up cash flow. See ATO debt refinancing for how this works.
4. Act before the $100,000 and 90-day threshold. Once a debt is reported to credit bureaus, finance becomes harder and more expensive to arrange.
5. Get professional advice if the debt is unmanageable. Your accountant can help with remission requests and forecasting. If the business can’t realistically pay, a registered liquidator can explain options such as small business restructuring before the ATO acts.

How Factor Capital can help

Factor Capital works with businesses carrying ATO debt every week. We compare lenders that accept ATO debt, including some that will fund its clearance directly, and we’ll tell you honestly when a payment plan is the cheaper path. If you own property, we’ll also check whether a secured option could replace a high-cost unsecured loan.

Sources

• ANAO: Australian Taxation Office Management of Small Business Collectable Debt (2026)
• SmartCompany: ATO to set new small business debt targets to reduce $35.9 billion shortfall (1 July 2026)
• Accountants Daily: ATO audit recommends SME debt collection targets
• ATO: General interest charge (GIC) rates
• ATO: Denying deductions for ATO interest charges
• ATO: Disclosure of business tax debts
• Factor Capital: ATO debt cost calculator

This article is general information only and isn’t financial, tax or legal advice. It doesn’t take your circumstances into account. Speak to your accountant or tax adviser about your tax position. Factor Capital is a trading name of Zinc Finance Pty Ltd (ABN 90 668 675 965). Factor Capital arranges finance for business and commercial purposes only. It does not provide credit assistance for consumer credit regulated under the National Consumer Credit Protection Act 2009 (Cth), including home loans and personal loans.