ATO Tax Debt: What Business Owners Should Do When They Can't Pay on Time
The ATO is not the enemy — but silence is the worst option
Many business owners, when they hit financial difficulty, tend to avoid the ATO — not opening the letters, not replying, not making contact. This is a natural reaction but the worst possible strategy.
The ATO has many tools to support a business in temporary difficulty — but only if you make contact proactively. The longer you leave it, the more the debt accumulates (interest plus penalties), and the more likely the ATO is to take firm action.
When you cannot lodge a BAS or pay on time
The first and most important step: contact the ATO before the deadline, not after you have already missed it.
The ATO may offer:
- Deferral: Allowing you to lodge late in some cases where there is a genuine reason
- Payment plan: An arrangement to pay in instalments over time
- Interest remission: In some cases, the ATO may reduce or waive the interest that has accrued if there are special circumstances and you comply with a payment plan
You can contact the ATO yourself through the business hotline (the number is on ato.gov.au), or ask your accountant or tax agent to contact them on your behalf. A tax agent usually has a priority line and experience negotiating with the ATO.
Late penalties and interest
General Interest Charge (GIC): The interest the ATO charges daily on unpaid tax — the rate is published by the ATO each quarter. It compounds and accumulates faster than many people expect.
Failure to lodge penalty (FTL): A penalty for not lodging a return or BAS on time — calculated by the number of time units you are late. For larger businesses, this penalty is higher.
An important point: GIC and FTL penalties can often be remitted (reduced or waived) in some cases if you have a genuine reason and make contact proactively. They are not remitted automatically — you have to request it.
Super — the payment you must never cut first
In practice, many struggling businesses cut super first — not paying on time, or not paying at all, to hold on to cash. This is the most costly mistake.
Super not paid on time triggers the Superannuation Guarantee Charge (SGC) — and this is not just a simple penalty. The SGC is calculated on gross salary (not only the super portion), plus interest and an administration levy, and the SGC cannot be claimed as a tax deduction while ordinary super can.
If you have to choose between paying a supplier and paying super, pay the super first. A supplier can negotiate — the ATO is not flexible about the SGC.
Director Penalty Notice (DPN) — personal risk for directors
This is something many directors do not know: if the company does not pay PAYG withholding and super on time, the ATO can issue a Director Penalty Notice (DPN) — making the director personally liable for those debts.
A DPN can lock in a director’s liability even after the company is placed into receivership or liquidation. Specifically:
- If the PAYG withholding and super have been reported (even if not yet paid), the director has a set period after receiving the DPN to resolve it before being pursued personally — check the specific timeframe with your accountant or on ato.gov.au
- If they were not reported (unlodged), the director can be pursued personally straight away, with no grace period
This is why you should always lodge a BAS and report on time even when you cannot pay — at the very least, reporting buys you more time to negotiate.
When you need urgent advice
If you receive a DPN, a notice of debt collection, or notice that the ATO intends to garnishee (take money from your bank account), contact your accountant and solicitor immediately — this is no longer a problem you can handle yourself.
A liquidator or voluntary administrator is also an option to consider if the company can no longer pay its debts — but this decision needs professional advice because it has complex legal consequences, including the risk of insolvent trading for the director.