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The ATO Has Sent a Clear Message to Australian Businesses

If your building or trades business is carrying an outstanding ATO balance, now is not the time to let it drift. The Australian Taxation Office has made unpaid business tax debt a priority, and for company directors in construction the consequences are no longer just a line on the balance sheet.

The Commissioner of Taxation recently revealed that Australia's unpaid tax debt has grown to approximately $115 billion, with around $54 billion regarded as collectable.

One of the ATO's priorities over the coming years is closing what it calls the "payment gap" - the difference between the tax that businesses report as owing and the amount that is actually paid.

For business owners, the message is fairly simple:

The ATO does not want businesses using GST, PAYG withholding or employee superannuation as a source of working capital.

And it has increasingly powerful tools available when debts aren't dealt with - which matters more in construction than in almost any other sector, because building and trades businesses are consistently among the hardest hit by business insolvency in Australia.

Company Debt Doesn't Always Stay With the Company

One of the biggest misconceptions we see among builders and subcontractors is that operating through a company automatically protects the director personally from the company's tax liabilities.

That isn't always the case.

Where a company fails to meet certain obligations, including:

the ATO can make company directors personally liable through the Director Penalty Notice regime. The ATO can then pursue directors personally through measures including garnishee notices, applying tax credits against the debt, or legal recovery action.

Construction businesses are especially exposed here, because so many run a mix of employees and subcontractors. If workers you have treated as subcontractors are later found to be employees, unpaid PAYG and super can flow back to you as the director - often for periods you thought were long closed.

This issue has become significant enough that the Tax Ombudsman has just commenced a review into how the ATO administers Director Penalty Notices.

The numbers are striking. In the 2024-25 financial year, the ATO issued more than 84,000 Director Penalty Notices, an increase of 136% in just one year, affecting directors of around 64,000 companies.

For company directors, tax compliance is therefore no longer simply an accounting issue. It can become a personal financial risk.

Ignoring ATO Debt Is Also Becoming More Expensive

There is another change business owners need to understand.

The ATO charges General Interest Charge, or GIC, when tax liabilities remain unpaid.

Since 1 July 2025, GIC incurred on outstanding ATO debt is no longer tax deductible. Previously, the tax deduction helped offset some of the cost of carrying an ATO balance. That is no longer the case.

So allowing GST, income tax or PAYG liabilities to build up can quickly become an expensive way of financing your business. An ATO payment plan can assist with cash flow, but GIC generally continues to accrue while the debt remains outstanding.

"I'll Lodge It When I Can Afford to Pay It" Can Be a Costly Mistake

Another mistake is delaying a BAS or other lodgement because the business doesn't currently have the cash available to pay the liability.

Lodgement and payment are two separate issues.

Even where a business cannot immediately pay its tax bill, keeping its lodgements current is extremely important.

Allowing both outstanding lodgements and outstanding payments to accumulate can significantly reduce the options available to a company and its directors if the ATO later takes recovery action.

The better approach is normally to understand the liability early, lodge correctly, and then deal with the cash-flow issue separately.

What Can the ATO Actually Do?

If tax debt continues to go unpaid, the ATO has a range of recovery options.

Depending on the circumstances, these can include payment demands, garnishee notices against bank accounts or amounts owed to the business, disclosure of qualifying business tax debts to credit reporting bureaus, Director Penalty Notices, statutory demands, and ultimately winding-up proceedings.

For a building business, a garnishee notice over "amounts owed to the business" is particularly painful, because it can capture the progress claims and retentions sitting in your debtors - the very money you were relying on to pay your subbies and suppliers.

That doesn't mean every business with an outstanding BAS is about to receive a DPN. The important point is that early engagement generally gives you far more options than waiting until enforcement action has started.

What Should Business Owners Do Now?

The starting point is knowing exactly where you stand.

Make sure all BAS, PAYG, income tax and super obligations are up to date, and check the actual balance owing to the ATO.

If there is a debt, look at it alongside your business cash flow rather than treating it in isolation. The question isn't simply, "Can I pay this today?"

It is:

"What is the most commercially sensible way to clear this debt while still keeping the business financially healthy?"

Depending on the amount involved and the circumstances of the business, an ATO payment arrangement may be available. Businesses owing $200,000 or less may be able to establish a payment plan through ATO online services or through their registered tax or BAS agent.

For larger debts, or businesses experiencing more significant financial pressure, it becomes even more important to get advice early.

A Simple Habit Can Prevent the Problem

One of the most effective cash-flow strategies we recommend is also one of the simplest:

Don't treat GST, PAYG withholding and employee super as business cash.

Consider transferring those amounts into a separate bank account as they arise. When the BAS or super payment falls due, the money is already there.

It prevents what we often see in growing building businesses: sales are increasing, the bank balance looks healthy, money gets reinvested into stock, vehicles, employees or equipment - and then a large BAS arrives between progress claims.

The business may be profitable but suddenly has a cash-flow problem. Good accounting should help prevent that situation before it happens.

Have an ATO Debt? Deal With It Before It Becomes a Bigger Problem

If you have an outstanding ATO balance, an overdue BAS, concerns about your company's tax position, or you simply aren't sure whether everything is up to date, getting advice early can make a significant difference.

At Reacco Chartered Accountants, we work with Perth builders, subcontractors, developers and trades businesses to understand their ATO position, manage tax obligations, and put practical systems in place to prevent tax debt from building up again.

Disclaimer: This article provides general information only and does not constitute professional tax, legal or financial advice. Every business situation is different. Please consult a qualified adviser before making decisions based on this content.