RSM flags ATO debt enforcement ‘areas to watch’

Small businesses in construction, professional services and hospitality are at the highest risk of ATO debt enforcement, RSM analysis of ATO tax debt data has revealed.

Looking at tax data in the ATO’s 2024–25 Annual Report, RSM Australia insolvency experts Adrian Hunter and Jerome Mohen warned that small businesses continued to hold significant portions of tax debt.

They urged accountants to identify at-risk clients with large overdue liabilities, noting that the ATO was cracking down with its debt recovery efforts to stem the growth of its debt books.

“The ATO is aware of the tools available to it to collect outstanding tax debt and are using these tools successfully,” they noted in a recent insight.

“Small businesses in construction, professional services, hospitality, and support services are at the highest risk of ATO enforcement due to high disengaged debt levels.”

According to RSM’s analysis, small businesses remained the largest source of collectable tax debt, at $35.9 billion. A large portion of small business taxpayers with large debts were ‘disengaged,’ with over 39,000 with debts over $100,000, accounting for over $11.3 billion of outstanding debt.

The pair warned that disengaged taxpayers with large, overdue tax debts would likely face firmer ATO action, including legal recovery. The amount of collectable debt had its smallest yearly increase since the pandemic in 2024-25, indicating that the ATO’s efforts to curb its debt books were starting to bite.

In its annual report, the ATO said it had continued to strengthen its compliance capabilities, manifesting through firmer and faster actions, particularly for taxpayers who did not engage with the ATO on priority debts, including the super guarantee charge, PAYG withholding and GST.

The ATO issued 84,529 director penalty notices (DPNs) to individual directors in 2024–25, concerning $5.5 billion in debts. As of 30 June 2025, the ATO had collected $1.2 billion and counting.

The construction sector was the worst offender when it came to small business tax debts, owing the ATO $4.3 billion in disengaged collectable debt. It was followed by the professional, scientific and technical services sector ($1.9 billion), hospitality ($1.2 billion) and the administrative services sector ($1.1 billion).

Insolvency-related debt was also rising, especially among small businesses and privately owned groups, Hunter and Mohen noted.

The pair urged accountants with small-firm clients to identify at-risk entities, encourage early engagement with the ATO if large overdue liabilities were identified and monitor clients’ compliance with activity statement lodgements and superannuation obligations.