Key Highlights

  • The Australian National Audit Office (ANAO) report, Auditor-General Report No. 45 of 2025–26, examined how the ATO manages collectable debt owed by small businesses.
  • 1,338,387 small businesses carried collectable debt, at an average of $26,797 each.
  • The ANAO also calculated a small business collectable debt ratio of 34.2%, compared with 8.1% for collectable debt overall.
  • The headline finding is the shift in how the ATO deals with these debts.

Small businesses owed the ATO $35.9 billion in collectable debt in 2024–25, about two-thirds of the total, and the Auditor-General has found that the tax office's firmest debt-recovery tools were used in just 0.5% of its debt contacts with them. The findings, in a report dated 30 June 2026, matter now because the ATO's 2025–26 annual report is due this month and the interest charge on unpaid tax has risen to 11.51%.

The Size of the Small Business Debt Book

The Australian National Audit Office (ANAO) report, Auditor-General Report No. 45 of 2025–26, examined how the ATO manages collectable debt owed by small businesses. Its figures cover 2024–25.

Total collectable debt across all taxpayers was $54.2 billion. Small businesses accounted for $35.9 billion of that, or 66.1%. Small business collectable debt has grown by $19.4 billion, or 118%, since 2018–19.

1,338,387 small businesses carried collectable debt, at an average of $26,797 each. A group of 39,352 small businesses the ANAO describes as "disengaged" owed $11.3 billion between them. On those figures, that works out at roughly $287,000 per disengaged business, a calculation rather than an ANAO statistic.

The ANAO also calculated a small business collectable debt ratio of 34.2%, compared with 8.1% for collectable debt overall. The ATO does not publish the small business ratio.

More Contact, Proportionally Less Force

The headline finding is the shift in how the ATO deals with these debts. Its debt-collection interactions with small businesses rose from 4.1 million in 2018–19 to 17.0 million in 2024–25.

Over the same period, firmer actions such as garnishee notices, disclosures to credit reporting bureaus, and pre-legal and legal action fell from 1.2% of interactions to 0.5%. The ANAO puts the 2024–25 number at 85,078.

That does not mean the ATO took fewer firm actions in absolute terms. On the ANAO's percentages, 1.2% of 4.1 million interactions is about 49,000, so the number of firmer actions appears to have risen. What has changed is that the much larger volume of contact has been dominated by softer measures such as reminders, calls and letters.

For a business on the receiving end, firmer actions carry real consequences. A garnishee notice allows the ATO to collect money directly from a third party, such as a bank or a customer, that holds or owes money to the business. A disclosure to a credit reporting bureau can make finance harder to obtain.

Eight Recommendations, All Agreed

The ANAO made eight recommendations and the ATO agreed to all of them. They include publicly reporting the on-time payment rate, the collectable debt ratio, disputed debt and uneconomical debt, and setting a measurable target to reduce small business debt.

The ANAO noted the ATO had not published some of this recommended debt data in the roughly five years since the Inspector-General of Taxation and Taxation Ombudsman first recommended it.

The recommendations are as much about transparency as collection. Without a published ratio or a target, it is difficult for Parliament or the public to judge whether the small business debt book is getting better or worse.

In its response, the ATO said: "Addressing this debt is critical to maintaining a level playing field."

Where the Debt Comes from

Longley also said about 70% of small businesses paid on time, compared with about 90% across the tax system.