Growing ATO debt book leading to tougher enforcement, Worrells says

The ATO’s annual report, released on 31 October, revealed that the total tax-debt book had jumped from $86.1 billion to $101.4 billion from 2023–24 to 2024–25, marking the largest year on year increase since 2003, insolvency and restructuring firm Worrells says.

Worrells noted that there had been a 28 per cent increase in the amount of tax debt transferred in the insolvency category, from $14.3 billion to $18.4 billion, indicating the ATO’s tougher stance on tax debt collection.

“This is the largest increase since [the] financial year ending 2011, when the Australian economy was still working through the aftershocks of the global financial crisis,” Paul Nogueria, principal of the Worrells Sunshine Coast office, said.

“The growth of debt subject to insolvency is a clear indicator that the ATO have turned up the heat when it comes to debt collection and enforcement”

The ATO has acknowledged that pandemic-era leniency had fed into a backlog of tax debts, which has led to tax debt more than doubling (+126 per cent) compared to the pre-COVID-19 baseline of $44.7 billion, Worrells said.

The ATO's 2024–25 annual report noted that small businesses continued to account for the majority of collectable debt, making them a key area of focus for the tax office.

Worrells added that director penalty notice (DPN) issuances surged by 136 per cent year on year, growing from 35,774 in the 2024 financial year to 84,529 in 2025.

In light of the outsized tax debts, the ATO was now deploying more aggressive recovery strategies, including garnishee orders, wind-up applications, credit-reporting disclosures and DPNs, Worrells said.

As ATO activity continues to be heightened, the insolvency firm urged SMEs to review their tax-debt exposures comprehensively, both at the company and individual levels. If firms had non-lodgments or late lodgments, Worrells advised engaging with advisers as early as possible.

Furthermore, Worrells urged firms to ensure their address records were correct so that important notices, including DPNs, were received and could be acted on immediately. They noted that failure to receive a notice due to incorrect addresses was no defence.

The insolvency firm added that the ATO’s compliance shift had stark and far-reaching implications, bringing greater personal liability risk for directors of companies that had withheld PAYG, GST or super and failed to pass them on.

“With tax-debt levels at an historic high and enforcement now stepped up, businesses and individuals cannot assume they’ll be granted time-and-space. The earlier you engage and the sooner you act, the more opportunities you retain to restructure or resolve on your terms,” the firm said.