Quietly – camouflaged by election campaigns and overseas strife – Australian small business has been dealt another blow – and by Australian politicians.
Legislation removing the deductions previously available to business – especially small businesses – carrying overdue tax debt was passed on 26th March, 2025.
https://www.accountingtimes.com.au/tax/controversial-changes-to-gic-deductions-pass-parliament
Paying off your tax debt is about to get a whole lot more expensive
This means that – as of July 1st 2025 – SMEs who had accumulated substantial tax debts through Australia’s harsh COVID lockdowns (and have been gradually paying it off) now face significantly more expense.
It’s a further demonstration that politicians of all persuasions really don’t understand the harsh realities of small business in the 21st century. This is nothing new – both sides of politics over the years have done things you would swear were designed to make SME operations harder.
The Liberal’s GST made SMEs carry the costs of tax collection. In this most recent punishing change, Labor has stripped away a key strategy that enabled SMEs to smooth the crazy cash flow spikes they regularly face from big, powerful customers who demand costly credit terms.
The result is that it’s more important than ever before to manage your tax debt proactively and strategically.
So what can you do?
The issue of accumulated, overdue tax debt has been a running sore for Australian SMEs ever since COVID “ended” (Not that it really has for many businesses!)
I’ve been writing about how to deal with Tax Debt regularly since 2022, and in 2024 I put together this business strategy guide. Mastering Tax Debt: How to pay off your SME tax debt without crippling your business
Here’s a summary of my 5-step action plan for making a strategy to deal with your tax debt.
Five steps to making a Tax Debt plan that works
The overall process of addressing and negotiating your Tax Debt is straightforward – AND YOU DON’T HAVE TO DO IT ALL YOURSELF!!!
1. Know your obligations
If you’re not sure what you owe or what your obligations are, then you need to consult a tax professional to find out.
Tax regulations are complex and full of legalese – so you may need a specialist tax law advisor, not just an accountant.
Why? Because there are harsh financial penalties for NOT meeting your obligations – and those penalties can make your situation MUCH worse. If you’ve missed something, or something has changed, then you want to know about it BEFORE the ATO tells you about it.
2. Work out what is affordable and what will work for your business
While a significant up-front payment will be required to demonstrate your accountability – you can negotiate a payment plan to pay off the majority of your debt over time.
There’s no point in a payment plan that puts your business into receivership.
Your need to be able to repay your obligations AND and keep operating sustainably for the repayment period.
3. Develop a funding strategy
Put together a funding strategy – with the help of a working capital strategist if necessary – so you can source the money you need to make your plan viable.
If you had the resources to pay your debt, you’d probably have done it already. That means that you probably need to look at borrowing in order to comply with your tax debt payment plan.
Resist pressures to borrow additional funds against your personal assets. (Your bank will likely push you to do that, as will some unscrupulous panic merchants.)
My strong (strong, strong, strong, strong) recommendation is that – if you have no cash reserves in your business – then you should look at borrowing against your business assets – not just physical assets, but also your financial assets (such as your Debtors).
Today’s wide range of smart FinTech financing tools – tailored to SME needs – should make that your last option – NOT your default.
FinTech cash flow lenders in the market today have a range of tax debt financing tools available. They look at funding tax debt as a regular loan – not anything special or a sign of failure or incompetence.
Typically, FinTech lenders will fund up to 8% or 10% of your turnover. Their loans are generally unsecured, which means they don’t need the backing of your private assets. Plus their application process is relatively simple and quick. One week is about all you need to put a solution in place.
The right FinTech tax debt loan – tailored to your business goals and needs – could be the difference between closing your doors and staying in business.
4. Develop a negotiating strategy for dealing with the ATO
You are going into a negotiating process with a powerful government agency who feels they have both right and might on their side – a negotiation for a workable agreement – one that will enable you to pay your debt off over a given timeframe without crippling your business.
Often people will find they’re pressured by ATO salaried employees to make ridiculous payments that will eventually send their business broke. Unless you’re a VERY skilled financial and legal negotiator, consider getting expert help for this negotiation.
The first place to start is with your accountant. Accountants regularly deal with the tax office, and I find that accountants can generally put something together.
However, if you have a situation that’s complex – and especially if you’ve started to incur penalties – then you may need “the big guns” who can bring legal expertise and financial expertise together to support you.
I’ve referred a number of customers and clients to Tax Assure. They are a specialist tax debt negotiating agency. They are basically a team of lawyers that specialise in tax matters.
Tax Assure’s expertise is in law, tax law and in negotiation – which means that they can typically negotiate better terms and longer repayment periods than the average accountant. In some cases they can actually get removal of penalties and interest!
5. Plan your process, then work your plan
Take it step by step – the important thing is to get started then keep moving. That way, you’ll be less likely to panic in the face of an ATO demand.
Get expert help where you need it. Start the inquiry process – because it may not be as costly as you think. It will certainly be LESS costly than a panic response when the ATO pulls out big guns like statutory demands.
The time to act on your Tax Debt is now
It’s bad enough that carrying an overdue tax debt is going to cost you more from July 1st, 2025.
However, it could become an even bigger problem if the ATO decides to hit you with a 21-day statutory demand.
If you need more information and thinking time, download my whitepaper. Mastering Tax Debt: How to pay off your SME tax debt without crippling your business
If you need help to even start thinking about what to do, then book a free Working Capital Strategy call today.
