Small business clients carrying tax debt are facing heightened personal financial exposure, as an Australian National Audit Office (ANAO) report pushes the Australian Taxation Office (ATO) to speed up debt recovery efforts.
According to the ANAO, small businesses are responsible for $35.9 billion of the ATO's total collectable tax debt of $54.2 billion. National business recovery and insolvency firm Jirsch Sutherland says the findings should serve as a clear signal to business owners to address outstanding debts before enforcement action begins.
Jirsch Sutherland partner Malcolm Howell, a dual-registered liquidator and bankruptcy trustee, said the ATO was ramping up its recovery toolkit.
"We've seen a significant increase in Director Penalty Notices (DPNs), garnishee notices being issued and assets being frozen. If you're carrying significant tax debt, now is the time to deal with it," Howell said.
He warned that company debt does not necessarily remain contained within the business.
"What starts as a company debt doesn't necessarily stay a company debt. Once a DPN is issued, the personal risk increases significantly. Add personal guarantees into the mix and business owners can quickly find their own assets exposed," Howell said.
Separate figures from the Australian Financial Security Authority (AFSA) reinforce this shift.
In May, almost 28% of individuals entering personal insolvency reported business involvement within the prior two to five years, while since July 2019 more than one in four (26.7%) personal insolvencies have involved a business connection.
Beyond enforcement action, Howell said businesses were also being squeezed by compounding cost pressures, including the recent introduction of Payday Super, rising land tax, higher operating costs, and payroll tax.
That surge in DPN use is now drawing regulatory scrutiny of its own. The tax ombudsman's review of how the ATO administers DPNs is scheduled to begin this month, examining cases including directors who were unaware of their personal liability or affected by illness. The review notes that the ATO issued more than 84,000 DPNs to directors of approximately 64,000 companies in the 2024–25 financial year, a 136% increase on the prior year.
He urged directors to seek advice early and keep ASIC contact details current, noting that a DPN sent to an outdated address does not delay enforcement.
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