ATO Tightens Rules on Tax Repayment Plans

The Australian Taxation Office (ATO) is intensifying its efforts to collect over $35 billion in unpaid taxes from small businesses. By adopting stricter standards for repayment and restructuring proposals, the ATO aims to bolster compliance but may inadvertently increase financial strain on struggling businesses.

Currently, insolvencies are surging, with 7,483 cases recorded in the first half of the 2025 financial year—47% higher than the previous year, according to ASIC data. Overall, 2024 saw 13,448 insolvencies, reflecting the after-effects of COVID-era challenges. Experts predict this upward trend could break corporate insolvency records by mid-2025.

Voluntary liquidations continue to dominate insolvency cases, but small business restructuring (SBR) plans have tripled, reaching 1,514 in the first half of 2025 compared to the same period in 2023. Despite this rise, the ATO’s stricter guidelines make these plans harder to approve. Businesses now face increased minimum repayments—rising from 20 to 30 cents on the dollar—further complicating eligibility for relief.

The tougher stance also reflects the ATO's frustration with being treated as the "last creditor," with businesses prioritising other repayments before addressing tax debts. Additionally, specific industries may encounter heightened scrutiny under ATO policies, raising challenges for companies seeking restructuring solutions.

While the ATO asserts that repayment plans are flexible and tailored to individual circumstances, these tighter controls reveal a challenging environment for businesses attempting to restructure.

On a broader economic scale, ASIC reported that during the nine-month period from July 1, 2023, to March 31, 2024, a total of 7,742 companies entered external administration—a significant increase of 36.2% compared to the previous year. The construction and accommodation sectors were particularly affected, accounting for a large portion of these failures.

As we look towards the future, economists predict potential interest rate reductions by mid-2025 that could ease financial strain on households and businesses as well as improve overall economic conditions.

Source: The Australian, ASIC, Australian Tax Office, Business Insurance Mag