The ATO has stopped waiting: managing a business tax debt in 2026

A $120,000 activity statement debt is costing you about $35 a day, and none of that is deductible. The general interest charge for the January to March 2026 quarter is 10.65 per cent a year, compounded daily on the overdue balance. That is the arithmetic, and it is the easy part. The harder part is that the Australian Taxation Office now moves to firmer action sooner than most business owners expect, and the warning you get before it does is measured in days.

Deputy Commissioner Anna Longley put the position plainly in a September 2025 speech to The Tax Institute's Tax Summit: the ATO's "more lenient approach to payment during the pandemic had an impact on payment culture". She reported that collectable debt had grown from $26.5 billion in June 2019 to over $50 billion at 30 June 2025, with small business owing $35.9 billion of it. In the 2024–25 year the ATO issued more than 84,000 director penalty notices, more than 15,000 garnishee notices, and disclosed around 24,000 debts to credit reporting bureaus.

Interest at 10.65 per cent that you can no longer deduct

The general interest charge is set quarterly under section 8AAD of the *Taxation Administration Act 1953*, and the next quarter's rate is generally announced about two weeks before it starts. It compounds daily. For the January to March 2026 quarter the annual rate is 10.65 per cent and the daily rate is 0.02917808 per cent.

The change that matters is not the rate. It is that GIC and shortfall interest charge incurred on or after 1 July 2025 cannot be claimed as a deduction, regardless of which income year the underlying debt relates to. That was announced in the 2023–24 Mid-Year Economic and Fiscal Outlook and legislated by the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025. Interest incurred before 1 July 2025 remains deductible in the 2024–25 and earlier income years, which is why most businesses have not felt this yet. It lands in the 2025–26 return.

What $120,000 actually costs a Robina business

Take a Robina building company, a base rate entity taxed at 25 per cent, carrying $120,000 of unpaid GST and PAYG withholding at the end of February. Every activity statement was lodged on time. None of it has been paid.

At the January to March daily rate, the debt accrues about $35 a day. If the rate held at the January to March level for a full year — it is reset every quarter, so treat this as an illustration and not a forecast — the year's interest would be about $13,483. Daily compounding accounts for $703 of that; simple interest at 10.65 per cent would be $12,780.

Under the old rules the company would have deducted the $13,483 and recovered $3,371 of it at 25 per cent, leaving a net cost of $10,112. It now bears the whole $13,483. To be in the same after-tax position, it has to earn about $17,978 before tax to service one year of interest.

Put it the other way. A non-deductible 10.65 per cent costs a base rate entity what a deductible 14.2 per cent used to cost. For a company on the 30 per cent rate the equivalent is 15.2 per cent. The rate did not move. The real cost rose by a third. If GST and PAYG withholding are not being set aside as they are collected, that is a **forecasting and cash flow problem** before it is a tax problem.

A director penalty notice makes the company's debt yours

Three company liabilities can become personally yours: PAYG withholding, GST and the super guarantee charge. The ATO issues a director penalty notice, and 21 days later it can recover the amount from you. Those 21 days run from the day the notice is posted or left at your address registered with ASIC — not the day you read it. If your ASIC address is a former accountant's office, fix that this week.

What you can do inside the 21 days depends on when the company reported the liability, not when it paid. The ATO's guidance on the director penalty regime draws the line clearly.

• PAYG withholding and GST reported within three months of the due date. The penalty can be remitted if, within 21 days, the company pays in full, appoints a voluntary administrator, appoints a small business restructuring practitioner, or begins to be wound up.
• Reported more than three months after the due date, or never reported. The only way to remit the penalty is to pay the company's liability in full. This is the locked-down notice. Appointing an administrator does nothing for it.
• Super guarantee charge. The test is stricter. The amount must be reported by the SGC due date, not within three months of it. Report it late and the penalty is locked down from the outset.

Where a company has not reported at all, the ATO can make its own estimate of the unpaid amount and issue a notice for it. Estimated amounts are treated as amounts that were never reported, so they arrive locked down by definition.

Two further points directors routinely get wrong. Resigning does not clear penalties for liabilities that arose while you were in the chair, and a director of several companies can expect notices capturing the total across all of them. A new director has 30 days from appointment to have the company pay, appoint or wind up before the company's pre-existing debts become personally theirs. Check the lodgment and payment history before you sign the consent, not after.

When the debt reaches your credit file and your bank accounts

The ATO may report a business tax debt to registered credit reporting bureaus where all of a short list of criteria are met: you have an ABN and are not an excluded entity; you have one or more tax debts and at least $100,000 is overdue by more than 90 days; you are not engaging with the ATO to manage the debt; and you have no active complaint with the Tax Ombudsman about the intended disclosure. Excluded entities are deductible gift recipients, complying super funds, registered charities and government entities. Every ordinary trading business is in scope.

Engagement is what stops it. The ATO treats you as effectively engaged if you have a payment plan and are complying with its terms, have applied for release from the debt, have an active objection against the decision the debt relates to, or have an active review before the Administrative Review Tribunal or an appeal on foot. Meet the reporting criteria and you are sent a notice of intent to disclose, with 28 days to act on it.

A garnishee notice is faster and quieter. Issued under section 260-5 of Schedule 1 to the *Taxation Administration Act 1953*, it requires a third party who holds money for you to pay it to the ATO instead. For a business that means your bank, your trade debtors, your merchant card provider, or the solicitor handling a settlement. The ATO sends a warning letter first and gives you a copy of the notice. On wages the deduction is usually up to 30 cents in the dollar of post-tax income.

What the ATO expects before it grants a payment plan

The ATO's stated design for a plan is instalments over the shortest possible fixed period, and the reason is the interest: GIC keeps accruing and compounding for the whole term of the plan. It wants two answers before it agrees — how much you can pay today, and when you can pay in full — with your future obligations built into the second answer rather than treated as a separate problem.

Income tax and activity statement accounts require separate plans. If you have overdue amounts on both, one arrangement does not cover you. A plan defaults if you stop lodging or let a new debt go unpaid, and on default the full overdue balance becomes payable immediately. Refunds and credits are offset against the debt, and the offset does not replace that month's instalment.

One plan stops the interest. A business with annual turnover under $2 million, activity statement amounts of $50,000 or less overdue for up to 12 months, a clean payment and lodgment record, no access to finance through normal business channels and demonstrable ongoing viability may qualify for an interest-free plan paid by direct debit over 12 months. GIC is charged and then automatically remitted while the plan is maintained.

As at 30 June 2025 the ATO held over 655,000 payment plans covering about $11.7 billion of debt. This is the ordinary path, not a concession. It is also what keeps you outside the credit reporting criteria. Whether the underlying business can carry the instalments is a separate question, and an honest one — that is a **business advisory** conversation, not a lodgment one.

Lodging on time and paying late is not the same problem as not lodging

The super guarantee charge statement for the October to December quarter is due on 28 February. If you paid an employee's super late, or missed it, lodging that statement by the due date is the difference between a director penalty you can still act on and one you cannot. Where the due date falls on a weekend, the ATO accepts lodgment on the next business day.

That is the pattern across the whole system. Late payment and late lodgment are different failures with different consequences.

Pay late and you are charged GIC. Expensive, compounding, but a number.

Lodge late and you add a failure to lodge on time penalty of one penalty unit for every 28 days the document is overdue, up to five units. At the current penalty unit of $330 that is up to $1,650 per document for an individual or small withholder, and multiples of it for medium and large withholders. You also cross the three-month line on director penalties, and you hand the ATO the power to estimate the liability itself.

Lodging on time when you cannot pay leaves you a taxpayer with a debt and a full set of options. Not lodging leaves you a taxpayer the ATO cannot see, and the response to that is faster and blunter. Keeping activity statements accurate and on time is the cheapest protection available, which is why we treat **bookkeeping and lodgment and compliance** as the same job rather than two.