The national auditor has found the ATO's management of small business debt only partly effective, recommending much stronger monitoring and reporting of collection activities. To my mind, more transparency only means one thing, even firmer collection action by the ATO:
💰 Small business owed $35.9bn of the $54.2bn ‘collectable’ debt book in 2024-25
💰 More than 1.3m small businesses are carrying debt, averaging $26,797 each
💰 Small business collectable debt has grown $19.4bn since 2018-19 (⬆️ 118%)
💰 Firmer and stronger actions were just 0.5% of small business debt interactions in 2024-25 (⬇️ from 1.2% in 2018-19)
💰 Total debt interactions jumped from 4.1m to 17.0m over the same period
💰 The ATO's own risk rating for small business debt is 'out of tolerance', and it does not expect to fix that anytime soon
💰 The auditor made eight recommendations, and the ATO agreed to all eight
This is not a great report on the ATO’s debt collection activities. The auditor is essentially telling the ATO to set a hard target to bring the volume of small business debt down, to publicly report on-time payments, and the collectable debt ratio, to benchmark its recovery actions, and to fix its unit costs so it can actually measure the return on each enforcement lever. Once you set a target to shrink a number and start measuring which actions move it, the rational response is to escalate the actions that work.
The most interesting stat in the report, is that despite significant growth in small business debts, firmer and stronger action activities made up just 0.5% of the ATO’s small business debt interactions. Turning up the dial here seems to be the obvious avenue to reduce the total debt.
The fairness argument running through the report gives the ATO (and government) the moral licence it needs to justify a harder line. The auditor frames rising debt as an unfair advantage handed to businesses that do not pay, at the expense of those that do. With more than 1.3m small businesses in debt, this is not a fringe of bad actors, it’s a deep-seated structural issue that needs to be addressed.
If you or your clients are operating a small business that is carrying tax debt, your risk of being on the receiving end of adverse action is only going to grow. Now is the time to get on the front foot and deal with the debt before the ATO becomes even more difficult to deal with. The window to sort things out quickly and quietly is always the first thing to close.