ATO Debt Recovery: Why You Shouldn’t Bury Your Head in the Sand

JH Bookkeeping Solutions
May 21
2 min read

If you’re a small business owner or company director dealing with ATO debt, here’s something you need to hear: now is not the time to ignore it.

Over the past year, the Australian Taxation Office (ATO) has seriously ramped up its debt recovery efforts. That means lodging late or putting off your tax payments isn’t just risky—it could have very real consequences for you and your business.

Let’s be honest: tax stress is real, and it’s easy to fall into the trap of avoidance. But ignoring your tax obligations won’t make the problem disappear. In fact, it often makes things worse.

What Can Happen If You Ignore ATO Debt?

If you’re behind on your tax obligations, you could face serious consequences, including:

Director Penalty Notices (DPNs) – This means company directors can be held personally liable for unpaid PAYG and superannuation.
Debt Disclosure to Credit Reporting Agencies – This can damage your credit score and impact your ability to borrow or secure financing.
Legal Action and Interest Charges – The ATO may initiate legal proceedings, and interest on overdue amounts continues to grow.

ATO Interest Will No Longer Be Tax Deductible from 1 July 2025

Here’s a big change business owners need to know about:

From 1 July 2025, interest charged by the ATO on unpaid tax debts will no longer be tax deductible.

This means holding off on payments just became a lot more expensive in the long run. What used to be a manageable cost with a tax offset will now hit your bottom line even harder. So if you're thinking of “buying time” by delaying payment, it’s worth reconsidering—especially with this new change just around the corner..

So, What Can You Do About It?

The good news? There are steps you can take to get back on track and stay off the ATO’s radar. Here’s where to start:

1. Face It Early

The sooner you acknowledge the issue, the more options you’ll have. Don’t wait until things spiral out of control.

2. Set Up an ATO Payment Plan

If you’re proactive, the ATO is often willing to work with you. A payment plan can help you manage cash flow while meeting your obligations.

3. Get Your Lodgements Up to Date

Even if you can’t pay the debt immediately, lodging on time sends a clear message that you’re taking responsibility—and that matters.

4. Talk to Your Bookkeeper or Tax Agent

Don’t try to tackle this alone. Your bookkeeper or accountant can help you assess your situation and figure out the best next steps.

Need Expert Help with ATO Debt or Business Recovery?

If the situation feels overwhelming, it may be time to bring in the experts. At JH Bookkeeping Solutions, we work closely with trusted professionals like de Jonge Read—a specialist consultancy that helps businesses navigate complex debt issues and restructure when necessary.

Whether you’re dealing with a large tax debt, facing a Director Penalty Notice, or just want to avoid getting to that point, reaching out for help could be the smartest move you make.