Increased ATO Debt Recovery: What Business Owners Need to Know in 2025

After several years of pandemic-era leniency, the Australian Taxation Office (ATO) has resumed a firmer approach to tax debt recovery. Businesses behind on their obligations are no longer being met with payment plans and interest remissions as standard. Instead, the ATO is reverting to what it calls "business-as-usual" recovery activity, meaning escalated action, increased Director Penalty Notices (DPNs), and more tax debt reported to credit bureaus.

This article breaks down what’s changed, what to expect in 2025, and how business owners, particularly directors—can avoid the harshest consequences.

Key Highlights:

• The ATO has resumed pre-COVID debt recovery practices
• Director Penalty Notices (DPNs) are on the rise, with a strict 21-day action window
• Tax debts over $100K can now be reported to credit bureaus
• Lodgement compliance is crucial
• Early action can mean more options, including formal restructuring

The ATO is back in action: here’s what that means

According to the ATO’s 2023–24 Annual Report, the agency is now actively pursuing $52.8 billion in collectible tax debt. In total, Australia’s outstanding tax debt hovers around $80 billion, a staggering increase from $45.4 billion in 2018–19.

During COVID, the ATO adopted a hands-off approach, offering flexible payment terms and widespread interest remissions. But those days are over. The ATO has openly stated it is recalibrating community expectations, moving away from leniency and back toward firmer recovery, including legal action and enforcement.

An example of this, is in the 2024 financial year, the ATO issued 8714 DPNs for unpaid superannuation guarantee and 26 702 DPNs for outstanding company tax debts.

"There’s a perception that you can just call the ATO and get interest waived or a long repayment plan approved. That’s no longer the case," says Travis Kukura.

What triggers ATO escalation?

Australia operates on a self-assessment tax system, meaning if you’re not lodging returns or communicating with the ATO, you're raising red flags.

The ATO now uses real-time data and AI-driven analytics, including:

• Single Touch Payroll (STP) reporting,
• Cross-matching data from financial institutions, and
• Employee tip-offs about unpaid superannuation

From July 2026 Pay-Day Super is coming, meaning, employers will also need to pay super within seven days of paying wages, a shift expected to increase scrutiny further.

Why lodging still matters

Whilst your business may be facing financial difficulties, lodging your returns shows the ATO you're trying to comply. Without up-to-date lodgements, the ATO:

• Won’t negotiate a payment plan,
• Can’t assess the scale of your debt, and
• May issue a DPN, shifting liability from the business to you personally.

Failing to lodge is like flying blind, and directors who do so risk losing any leverage they might have in negotiations.

What is a Director Penalty Notice (DPN) and why is it dangerous?

A DPN makes a company director personally liable for unpaid statutory obligations (such as PAYG, GST, and super). If a director fails to take action within 21 days of receiving the notice, they could be pursued personally for the entire liabilities.

There are two types:

• Non-lockdown DPNs: where you’ve lodged but not paid. You have 21 days to either pay the debt or appoint a Small Business Restructuring Practitioner, Voluntary Administrator, or Liquidator.
• Lockdown DPNs: where you’ve failed to lodge. These cannot be avoided through restructuring. You’re already personally liable.

For a deeper dive, read RSM’s guide to DPNs and Director Obligations.

When to consider formal restructuring or insolvency

Many business owners delay seeking help, until it’s too late. But early action opens more doors. If a company receives a DPN and doesn’t act quickly, the director may lose the ability to restructure or avoid personal liability.

You might need to consider:

• A Small Business Restructure (SBR) to propose a repayment plan to creditors,
• Voluntary Administration to explore a Deed of Company Arrangement (DOCA), or
• Liquidation if the business is no longer viable.

The ATO generally won’t compromise debts informally, but are more likely to accept reduced returns through formal processes like SBR or VA. You can learn more about the SBR process here.

The common mistakes that get businesses into trouble

“The ATO is not your bank,” says Travis. “But many business owners treat it like one.”

Some of the most frequent missteps include:

• Skipping BAS or super lodgements
• Relying on outdated assumptions that the ATO will always cut a deal
• Avoiding early advice due to cost concerns, only to face far greater consequences later

Even businesses that appear profitable on paper can spiral quickly if lodgements fall behind or super isn’t paid.

What sectors are at risk?

While media attention has focused on construction and retail, Travis notes the ATO’s actions are now industry-agnostic.

“We’re seeing this across labour hire, hospitality, and even professional services. No one is off the radar.”

If your sector relies on high cash turnover or deferred payments, you may be especially vulnerable.

Don’t stick your head in the sand: what to do next

ATO debt recovery is expected to get tougher. If you’re falling behind:

• Lodge your outstanding returns—even if you can’t pay right now
• Don’t ignore letters or DPNs
• Seek expert advice early
• Consider formal options before your 21-day DPN window closes

Need help navigating tax debt or a DPN?

Reach out to Travis Kukura and the team at RSM’s Restructuring & Recovery division.
Available across WA including Perth, Albany, Broome, Esperance, Fremantle, Geraldton, Karratha, Mandurah, Northam and Rockingham.