How SMEs Can Take Action on Outstanding ATO Tax Debt Before it's Too Late
Tax Debt is becoming a growing concern for Australian small and medium sized businesses. According to the latest data, the Australian Taxation Office (ATO) is currently chasing over $50 billion in collectable debt, and SMEs are responsible for more than $33 billion of that figure.
During the COVID-19 pandemic, the ATO adopted a more flexible approach, allowing businesses more time to pay their debts. But that leniency is ending. The ATO is now ramping up its collection efforts, warning that businesses with overdue tax debt could face penalties, interest charges, or even credit reporting consequences.
If your business has outstanding tax debt, now is the time to act. Here's what you need to know, and how to take proactive steps to protect your credit and cash flow.
Is your Business at Risk of ATO Credit Reporting?
Since 2019, the ATO has had the legal power to report tax debts to credit rating agencies, but during the pandemic, it largely refrained from using those powers. Now that's changing.
If your business meets the following criteria, you could be at risk of being reported:
- You owe more than $100,000 in tax
- You have an Australian Business Number (ABN)
- Your debt is overdue by more than 90 days
- You do not have a payment plan in place or currently being negotiated
Being reported to a credit agency can seriously impact your ability to obtain finance, trade terms and business credibility, so taking action early is crucial.
What Kinds of Tax Debt Does the ATO Report?
The ATO can report on several types of unpaid tax obligations, including:
Income Tax Debt
Unpaid taxes on your business's profits
Activity Statement Debt
Including unpaid GST and PAYG withholding
Superannuation Debt
Missed employer super contributions
Fringe Benefits Tax
Owed from non-cash employee benefits
Penalties
For late lodgement or non-payment
Interest Charges
Added to overdue balances, increasing debt totals
These debts can quickly compound, especially if they've been left unmanaged for several quarters.
What SMEs Can Do About Outstanding Tax Debt
If your business owes $100,000 or more to the ATO, the worst thing you can do is ignore it. The good news? There are proactive steps you can take right now to stay off the ATO's radar and avoid damage to your credit reputation.
1. Engage with the ATO Immediately
The first and most important step is to open a line of communication with the ATO. Even if you can't repay the debt immediately, reaching out to discuss your situation shows your intentions to comply.
This can help you negotiate a payment plan, reduce penalties or prevent your debt from being reported to credit agencies.
Tip: Be prepared with accurate financials and realistic repayment proposal before making contact.
2. Explore Funding Options like Invoice Finance
If your cash flow is tight and you're struggling to meet ATO repayment terms, alternative solutions can provide the working capital needed to get back on track.
One powerful option for SMEs is Invoice Finance, a flexible, fast-access funding solution that uses your unpaid customer invoices to generate immediate cash flow.
Here's how it works:
- You provide your outstanding invoices as collateral
- A lender advances up to 95% of the invoice value
- Once a customer pays, the remaining balance (minus fees) is released
Unlike traditional loans, Invoice Finance:
- Requires no property or asset security
- Has fewer eligibility hurdles
- Can be set up quickly, often in days
- Grows with your business revenue
Invoice Finance is especially useful for businesses that need short-term funding to meet ATO tax obligations without taking on long-term debt.
Don't Let Tax Debt Derail Your Business
With the ATO tightening enforcement, waiting is no longer an option. If your business owes a significant tax debt, you need to act now to avoid penalties, protect your credit score and maintain your financial flexibility.
At RLA Finance, we specialise in helping Australian SMEs navigate funding challenges, including tax debt. With a access to a wide panel of lenders and flexible options like Invoice Finance, we can help you secure the right funding to take control of your ATO obligations and protect your business's future.