Things are getting tougher for small businesses struggling with tax debt in 2025. Not only is the ATO cracking down on debt, but payment plans are also harder to get than in previous years.
Plus, from July 1, 2025, interest on your ATO debt will no longer be tax deductible, meaning you’ll have to pay even more tax – and go further in debt – come tax time.
“This will have quite a massive impact on clients,” Catarina Santini, a registered tax agent and owner of CS Accounting, told ISB. “A lot of clients are going on payment plans just because of the economy.”
So, what can small-business owners do if they owe the ATO? We asked Santini and a fellow tax agent, Morgan Wilson from Creditte, about the current state of play and what they’re telling their clients.
What to do if your business owes the ATO in 2025
Engage early
If you’re facing down tax debt, you can’t bury your head in the sand: You need to engage early.
Wilson advised to keep up with your lodgement and talk to your tax agent – anything to show the ATO that you’re getting on top of things.
“Get on the front foot with it,” he advised. “Even if it’s purely just talking to your tax agent – you can at least have that file note there.”
Santini echoed this sentiment, and added that it’s worth having conversations about payment plans sooner rather than later. Also, start getting your documents in order – you may need up-to-date figures (i.e. cashflow or P&L) to negotiate a payment plan.
Get a payment plan
Your best option if you have ATO debt is to get a payment plan. If you’ve never had a payment plan before, you should be able to get one via the ATO business portal. If you have, you may have to call up instead.
Santini said that the ATO has historically liked 12-24 month plans the most. However, this might be changing. In one case, Santini tried to negotiate a seven-month payment plan for a client and was told that they only allow six month plans – two weeks after she had netted another client a 24 month plan.
“I’m going to be honest with you, it depends on who [at the ATO] you talk to,” she said. “You can ring the ATO two times in one day and get two different responses, which I’ve had.”
Wilson is seeing a similar situation with his clients. He said that some have had better luck getting a payment plan when they called the ATO themselves, rather than doing it through a tax agent.
“A lot of it is hang up, try again, and see if you get the right person,” he said.
Both Santini and Wilson agreed that payment plans are much harder to get nowadays.
“A few years ago it was so easy to get a payment plan,” said Santini. “But right now, we are having to really push it. We’re having to show P&L, cashflow, and argue a point.”
Even mental or physical health issues might not be enough to get some compassion, according to both tax agents.
“There’s been some heartbreaking stories of physical and mental health issues,” said Wilson. “But the ATO have been blunt around ‘We don’t care.’”
In some circumstances, a loan might be worth it
Getting a loan to pay off ATO debt isn’t an ideal scenario, but it can be the right option in some situations. For instance, if you’re going through a business lull, but know that cashflow will be back in six months’ time, you might consider a loan to get you through the quiet period, said Santini.
Wilson agreed that a loan can be a good move to keep the business rolling along short term, in specific scenarios.
“If you’ve got suppliers on account and the ATO does ding your credit file, your suppliers can easily go ‘We’re cash on delivery now,’” he said.
The other benefit of these loans is that interest on them will remain tax deductible after July 1 – but their cost-effectiveness would, of cost, depend on the interest rate.
Both tax agents emphasised that loans are extremely context specific and that business owners should discuss their unique situation with their tax professional first.
Explore restructuring
Your last resort is engaging an insolvency practitioner to help you and taking advantage of the small business restructuring arrangement that was introduced in 2021.
Wilson told ISB that this is becoming more popular, but that it’s a last-ditch effort. He told small-business owners to hang in there if they can.
“Hang in there – get professional help, your tax agent is there to help you,” he said.
Santini has seen clients with hundreds of thousands in tax debt turn things around – so there is hope.
“Seek some support and come up with a strategy,” she said. “Own what you owe and work out a plan to go forward – once you’ve done that you can start achieving something.”
