On 30 June 2026 the Australian National Audit Office tabled its performance audit of ATO small business debt collection, and the ATO published its response the same day, accepting all eight recommendations. Every outlet ran the $35.9 billion headline. The number sitting further down the report is the one that matters to an owner: director penalty notices went from 35,774 in 2023-24 to 64,342 in 2024-25.
I should say up front that I own businesses, including one that supplies offshore staff and admin support, so bookkeeping and lodgement discipline is something I sell. I also run companies with staff and quarterly obligations, which is why this audit read differently to me than the usual tax headline.
Tl; dr;
- The ANAO found the ATO’s management of small business collectable debt only “partly effective”, with no measurable target for reducing it.
- Small business holds $35.9 billion of $54.2 billion in collectable debt, or 66.1 per cent of the book, up $19.4 billion since 2018-19.
- 1,338,387 small businesses carry collectable debt, averaging $26,797 each.
- Director penalty notices nearly doubled in one year, from 35,774 to 64,342.
- The ATO accepted all eight recommendations, so the direction of travel is harder, not softer.
- Personal liability is triggered by late lodgement, not by unpaid tax. That distinction is the whole post.
What the audit actually found
The ANAO’s conclusion is blunt. Management of small business collectable debt is “partly effective”, and the ATO had not set a measurable target for bringing the balance down. Not a target it missed. No target at all. The full report is on the ANAO site, and SmartCompany has the readable version if you would rather not open a performance audit on a Monday.
Be precise about the big number. The $35.9 billion is a stock of debt sitting on the books. It is not money the ATO has forecast to collect.
The director penalty notice number is the one to watch
35,774 notices in 2023-24. 64,342 in 2024-25. Close to double in twelve months, and it happened before the audit was published. The report did not cause it.
Nothing I have seen establishes enforcement has risen since June, so if someone tells you the ATO started cracking down in response to the audit, they are reading the press release rather than the data. What the data shows is a trend already running, now paired with a regulator that has formally agreed it was too soft.
What “disengaged” means on the ATO’s scoreboard
More than 39,000 small businesses are classified as disengaged taxpayers, owing roughly $11.3 billion between them. The classification generally applies where a debt is over $100,000 and more than 90 days overdue.
Disengaged describes a behaviour. It is not a finding that a business is insolvent, and that is worth saying plainly, because the word does a lot of unearned work in headlines.
Why ATO small business debt is really a lodgement problem
A lockdown director penalty notice arises where returns are not lodged within three months of the due date. The notice gives 21 days, and inside those 21 days the options are payment, liquidation or voluntary administration. That is the menu.
What converts a company debt into your personal liability is paperwork, not cash. Lodge on time and you are dealing with a reported liability, which is a negotiation. Fail to lodge and the amount locks down to you as a director, and the negotiation is over before it starts.
This is the least exciting argument for proper bookkeeping support and easily the strongest one. I have written about where Australian businesses quietly waste money on bookkeeping over at VA For Everyone, and the point stands here. The reason to fix the function is not a tidy ledger. It is that lodgement is the one deadline carrying a personal liability.
What I would actually do with this
Back in 2022 I wrote some tips on surviving inflation for small businesses, and almost all of it was about protecting margin. Margin is still the day job, but compliance is now the side that can cost you more than profit.
I have dealt with a Small Business Restructuring practitioner, so I understand what going through that feels like. It is not an abstract process you read about in an audit report. It is a series of very specific conversations, and almost every one of them would have been easier if the paperwork had been in order first.
Three things I would check this quarter. First, are all activity statements and returns lodged, including the ones you cannot pay. Second, are your director details and addresses current, because a notice is effective when it is sent to the address on the register, not when you read it. Third, if a debt is heading past $100,000 and 90 days, get it in front of someone before the ATO classifies your silence for you.
Summary
The ANAO’s read of ATO small business debt is that the regulator has been too soft, the ATO has agreed on all eight counts, and director penalty notices had already nearly doubled before any of that was written down. I would not panic about the $35.9 billion, because it is a balance rather than a bill anyone is collecting this quarter. The lodgement deadline is a different matter, and it deserves more respect than most small businesses give it. Lodging on time while you are still negotiating the payment is the cheapest insurance in the tax system.
An ounce of prevention is worth a pound of cure.
Benjamin Franklin, “On Protection of Towns from Fire”, The Pennsylvania Gazette, 4 February 1735
