The ATO’s Compliance Focus Areas Keep Shifting. What Does That Mean for a Business Carrying Tax Debt?
- 7 hours ago
- 7 min read
The Australian Taxation Office updates its small business compliance focus areas every quarter. A business that attracted no attention last year can now sit squarely inside a current focus area without anything about the business having changed.
For a business that is up to date, that is simply a prompt to check the detail. For a business already carrying tax debt, it matters more. The ATO has resumed firmer recovery action, interest on tax debt is no longer deductible, and Payday Super has shortened the payment cycle. Each change reduces the time in which a director can deal with the position on their own terms.
This article explains what has changed, why timing now matters more than it did, and the realistic options that may be available depending on the circumstances.
How much tax debt is the ATO actually pursuing?
According to the Australian National Audit Office’s June 2026 performance audit, small business collectable tax debt reached $35.9 billion in 2024–25. That was approximately two-thirds of the ATO’s $54.2 billion total collectable debt and an increase of $19.4 billion since 2018–19.
The audit found the ATO’s management of small business collectable debt was only partly effective and made eight recommendations covering performance measures, benchmarks, communication and better use of data. The ATO accepted all eight. In practical terms, the pressure to collect is not easing. It is becoming more formal and measurable.
In a speech to The Tax Institute Tax Summit, ATO Deputy Commissioner Anna Longley said much of the unpaid business debt relates to GST, PAYG withholding and the superannuation guarantee charge. These are amounts businesses collect or withhold on behalf of employees and the tax system. They are also categories that can create personal exposure for directors.
The same speech noted that more than half of collectable debt was less than 12 months old and that the ATO views this early period as its best opportunity to collect. A new debt does not simply sit in a queue. It can become an early priority.
What compliance areas is the ATO focused on right now?
The ATO publishes its current small business focus areas and reviews them quarterly. Its published framework covers four broad themes:
Omitted income — using business money or assets for personal benefit, contractors leaving income out of returns, and cash transactions used to avoid obligations.
Deductions and concessions — non-commercial business losses, misuse of the small business CGT concessions, and over-claimed expenses and GST credits.
Operating outside the system — FBT on private use of work vehicles, GST registration for ride-sourcing, and tax and super risks in property and construction.
Building good habits — including moving businesses with poor payment and lodgement behaviour from quarterly to monthly GST reporting.
The ATO says most small businesses try to do the right thing and that firmer action is directed at taxpayers who knowingly avoid their obligations. The practical issue is that an automated risk signal does not, by itself, explain whether a discrepancy is deliberate or the result of a business quietly falling behind while trying to keep trading. Both can prompt correspondence and require a response.
Because the list changes, the sensible discipline is simple: check it, or ask your accountant to, whenever the ATO publishes a new quarter’s priorities.
Why acting early matters more than it did in the past
Waiting rarely improves the position. Several changes now make delay more expensive and more risky.
Firmer recovery action has resumed. The ANAO audit records that from 2023–24 the ATO recommenced actions including garnishee notices, directions to pay, Director Penalty Notices and disclosure of business tax debts. The ATO’s Payment Strategy also emphasises earlier and firmer action where taxpayers do not engage. A garnishee notice can require a bank or a person who owes the business money to pay the ATO instead. Eligible overdue business tax debt may also be reported to credit reporting bureaus.
ATO interest is no longer deductible. General interest charge and shortfall interest charge incurred on or after 1 July 2025 cannot be claimed as tax deductions. GIC compounds daily. A tax debt that was already an expensive form of finance now costs more after tax for as long as it is carried.
Super is now tied to each payday. From 1 July 2026, Payday Super replaced the previous quarterly cycle. Contributions generally need to reach an employee’s super fund within seven business days after payday, subject to limited exceptions. For a business with tight cash flow, this removes the informal buffer the quarterly cycle once provided and brings shortfalls to light sooner.
Directors can be personally exposed. A Director Penalty Notice, commonly called a DPN, can make a director personally liable for certain unpaid PAYG withholding, GST and superannuation guarantee charge amounts. What can still be done depends on the notice, the company’s lodgement history and timing. The actual notice should be reviewed urgently.
None of this is a reason for panic. It is a reason for accuracy. Early engagement, supported by a clear understanding of the company’s position, generally preserves more choices.
The realistic options for a business with ATO debt
The facts determine the solution. Before any process is chosen, the position needs to be assessed properly: what caused the pressure, whether the underlying business is viable, what is owed and to whom, whether lodgements are current, and whether the director already has personal exposure.
A payment plan can provide breathing room. The limitation is that the business must meet its current obligations while also paying down old debt, and GIC continues to accrue on the unpaid balance. The ATO explains the eligibility and setup process in its payment-plan guidance. Repeated renegotiation can indicate a structural problem rather than a temporary timing issue.
Small Business Restructuring may suit an eligible, viable company. SBR is a formal process that can allow a company to propose a compromise of its debts while the directors remain in control and the business continues trading. Broadly, liabilities must not exceed $1 million, tax lodgements must be up to date, and due employee entitlements must be paid before a plan is proposed. The detailed criteria are set out in ASIC’s SBR guidance. Any proposal is subject to creditor approval. TTJ Advisory has also explained how SBR interacts with ATO debt in ATO Crackdown 2026: What It Means for Small Business Restructuring and ATO Debt.
Voluntary administration may suit a larger or more complex company that falls outside the SBR criteria but where a restructure or sale may still be achievable. An independent administrator takes control while creditors decide the company’s future. ASIC provides a guide to the process and creditor options.
An orderly closure through a creditors’ voluntary liquidation may be responsible where the business is no longer viable. Continuing to trade a company that cannot pay its debts as they fall due can increase risk for directors and creditors. ASIC’s liquidation guide explains how an insolvent company’s affairs are wound up and assets dealt with.
Which option applies — if any — depends entirely on the circumstances. Each has eligibility requirements and consequences that need to be understood before anything is signed.
Warning signs the position should be assessed now
The company is on its second or third renegotiated ATO payment plan.
Tax or super debt is effectively funding day-to-day cash flow.
BAS returns are lodged but unpaid, or lodgements have stopped.
Superannuation payments are behind.
A Director Penalty Notice, garnishee notice or direction to pay has been received.
The ATO’s current focus areas now cover the business’s industry or behaviour.
Any one of these is a prompt to have the position reviewed. Where several are present, delay may reduce the available options.
A note for accountants and advisers
A client who was not on the ATO’s radar six months ago may be inside a published focus area today without their circumstances having changed. The quarterly updates are worth building into the review cycle for clients carrying ATO debt.
The timing of a referral can materially affect what can be done. A company that seeks advice while lodgements are current and before enforcement begins generally has more options than one that arrives after notices have issued. TTJ Advisory works alongside the existing adviser relationship: our role is to assess the position and set out the available options, not replace the accountant who knows the client best. Advisers can also review TTJ Advisory’s Small Business Restructuring pathway for advisers and accountants.
Frequently asked questions
What are the ATO’s small business compliance focus areas?
They are risk areas the ATO publishes and reviews quarterly. The current framework includes omitted income, deductions and concessions, operating outside the system, and building good business habits. Always check the ATO’s current page because the specific priorities can change.
How much tax debt do Australian small businesses owe?
The ANAO’s June 2026 audit put small business collectable tax debt at $35.9 billion in 2024–25 — about two-thirds of the ATO’s $54.2 billion total collectable debt.
Is interest on ATO debt still tax deductible?
No. General interest charge and shortfall interest charge incurred on or after 1 July 2025 cannot be claimed as a deduction. This increases the after-tax cost of carrying an ATO debt.
Can a director be personally liable for company tax debt?
Yes, in certain circumstances. A Director Penalty Notice can make a director personally liable for specific unpaid PAYG withholding, GST and superannuation guarantee charge amounts. The available response depends on the notice, lodgement history and timing, so prompt advice is important.
What is Small Business Restructuring?
It is a formal process that may allow an eligible company with total liabilities not exceeding $1 million to propose a compromise to creditors while directors remain in control and the business continues trading. Eligibility and proposal requirements must be checked for the company’s circumstances, and creditors must approve the plan.
Should I wait and see whether the ATO contacts the company?
Waiting rarely improves the position. Interest can compound, enforcement may begin and personal exposure can increase. Early review gives the company and its advisers more time to understand the position and the options that may still be available.
The next step
The ATO’s priorities will shift again. What does not shift is the principle underneath them: the sooner a problem is assessed, the more options are generally available.
If your business is carrying tax debt, or a client of yours is, the next step is to understand the position before another notice, missed payment or creditor action reduces the choices. An initial confidential discussion can clarify the company’s position, the director’s potential exposure and the options that may be available.
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References
This article provides general information only and does not constitute legal or financial advice. Whether any option is available or appropriate depends on the company’s circumstances after its position has been assessed. Read TTJ Advisory’s full disclaimer.
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