The Australian Taxation Office (ATO) is intensifying its focus on stricter compliance, actively pursuing outstanding tax debts and scrutinising property transactions. This shift impacts small and medium-sized enterprises (SMEs) and property owners, who must now navigate a more stringent regulatory environment.
Debt Collection
Australia’s tax office has become more aggressive in pursuing outstanding debts and reducing flexibility in payment arrangements. This change adds pressure to businesses to monitor cash flow and manage obligations. Daily interest will begin to be charged on tax bills that remain unpaid beyond the deadline at a rate of 11.36% p.a. Currently, this interest is tax deductible; however, from July 1, 2025, this will no longer be the case, increasing pressure on SMEs. If tax bills continue to be deferred, the ATO may escalate the matter to a debt collection agency.
In certain cases, the ATO can pursue legal action by issuing a director penalty notice or garnishee notice to business owners with overdue obligations. To avoid penalties or aggressive debt collection, SMEs must demonstrate stronger financial health.
To combat these increased ATO crackdowns, SMEs should implement the following strategies:
- Regularly review tax obligations: Monitor tax situations regularly, especially with any business changes. Engage proactively with the ATO if needed.
- Cash flow forecasting: Accurate forecasts help plan for upcoming tax payments and avoid financial surprises.
- Implement stronger credit control: Set clear payment terms, follow up on overdue invoices and review customer creditworthiness. Establish an emergency fund for unexpected costs.
- Cost control and efficiency: Review expenses regularly and reduce costs where possible. Monitor profit centres and renegotiate with suppliers to improve cash flow.
It’s important to note that the ATO will still negotiate sustainable repayment plans with businesses, at its discretion. Factors that the ATO will consider when deciding whether to approve a repayment plan include payment history and whether the business has previously entered into a repayment plan with the ATO.
Crackdown on landlords
Property transactions are also under the ATO’s spotlight, with the tax office paying special attention to landlords who falsely claim deductions or underreport capital gains. The ATO will scrutinise property transactions closely, so landlords must accurately report all income, expenses, and capital gains. The ATO will focus on landlords failing to lodge tax returns and those who falsely claim rental deductions on their income tax returns. It was found that nine out of ten landlords were getting their tax returns wrong, adding to the significant tax gap in the rental property sector. The most common mistake among landlords was a misunderstanding about which expenses could be claimed and when, such as claims for repairs and maintenance versus capital expenses.
Landlords must carefully monitor their reporting of deductions on rental renovations and capital improvements, as these may only be deductible over time as capital works.
Property owners are advised to ensure their records are accurate and up to date, as discrepancies found in rental income reporting could lead to potential audits, penalties, or other compliance actions.
The ATO is identifying all property disposals and is expecting to see reference to the transactions in annual income tax returns. This will also include transactions where the capital gain is reduced by concessions such as the main residence exemption.
The ATO’s crackdown on tax debts, record-keeping and income reporting presents a significant challenge for SMEs and landlords. However, adopting the strategies above and being aware of what the tax office is looking for will help you remain outside the ATO’s focus.
Contact your local William Buck Advisor for help with accurate reporting, budgeting or cash flow forecasting, to ensure you remain compliant and avoid late payment of an ATO bill.
