Skip to content

Blog - ATO Enforcement in 2025: Debt Collection and Reporting

Read time: 3 minutes
Diane Tipping
Diane Tipping

ATO Enforcement in 2025: Debt Collection and Reporting

A recent webinar hosted by Jarrod Joseph (Deputy Taxation Ombudsman) and Sarah Lancaster (Tax Lawyer, HLS Tax Law) provided valuable insight into the ATO’s current approach to debt collection. It highlighted the increasing seriousness with which the ATO is pursuing outstanding tax debts, and the importance of responding to any ATO correspondence relating to tax arrears.

This increased enforcement effort has led to a rise in audits, Director Penalty Notices (DPNs), and corporate insolvencies. The ATO is focusing on compliance and is actively pursuing both new and historical debts - including debts that were previously considered uneconomical to chase. In many cases, interest is being backdated to the original debt date, significantly increasing the total amount owed.

Further tightening the screws, from 1 July 2025, interest on overdue tax - General Interest Charge (GIC) and Shortfall Interest Charge (SIC) - will no longer be tax-deductible. This change will make the financial cost of carrying tax debt even greater.

The ATO’s debt recovery process typically includes:
  • Initial demand letter
  • Escalated demand letter
  • Further action warning (if there’s no response)
  • Reporting debts to credit agencies
  • Issuing Director Penalty Notices
  • Garnishee orders – which may be issued at the same time as a notice of assessment, allowing the ATO to intercept funds such as wages or client payments.

Directors should be particularly alert to Director Penalty Notices. These give you 21 days to act - either by paying the debt, engaging an insolvency practitioner, or negotiating a resolution with the ATO. Simply appointing an administrator will not shield directors from personal liability, especially as the ATO can issue DPNs years after the fact. Additionally, if a business is deregistered, the ATO will continue pursuing the debt.

It’s also important to understand that entering into a small business restructuring plan does not count as a payment arrangement. The ATO may still offset future tax credits against the outstanding debt.

Negotiating payment plans is becoming more difficult, particularly for debts exceeding $100,000. When assessing a request for a payment arrangement, the ATO will consider:

  • Your capacity to pay
  • Your ability to repay the debt as quickly as possible
  • Your payment history and any previous defaults
  • Whether additional security (e.g., property) can be provided

A poor track record of defaulting on past arrangements is viewed as non-compliance and will make it much harder to negotiate favourable terms in the future.

What We Recommend

If you receive any correspondence from the ATO regarding outstanding tax debt, do not ignore it.


Failing to engage can lead to serious consequences, including personal liability for directors and significant financial penalties. It's always better to face these matters early and work proactively with the ATO or your tax adviser to find a solution.

More articles