Author
Marcus PetrovicDirector & Head of Client Strategy
If your business tax debt is growing, the right solution is not always obvious. Some businesses can stabilise their position with a payment plan. Others may have grounds to reduce interest and penalties. In many cases, those options only delay a bigger problem.
The amount owed is only part of the issue. What matters most is whether the business can realistically deal with the debt while continuing to operate. That is where clarity matters. Understanding the full range of tax debt solutions helps you decide whether informal options are still realistic, or whether a more structured approach like Small Business Restructuring or Voluntary Administration is needed.
Why tax debt gets out of control
ATO debt rarely becomes a problem overnight. It usually builds slowly as BAS falls behind, PAYG or super is delayed, and cash flow tightens. As discussed in the video, interest can become a major issue because it compounds daily and can quickly turn a manageable debt into something far more difficult to deal with.
You can review how ATO interest works directly on the official ATO website. The longer the debt sits, the harder it becomes to recover. Eventually, the business is no longer just dealing with the original tax debt. It is dealing with mounting interest, pressure from the ATO, and growing uncertainty about whether the business can realistically catch up.
Why GIC and SIC can make tax debt harder to manage
Two common ATO interest charges are the General Interest Charge (GIC) and Shortfall Interest Charge (SIC). GIC generally applies when tax debts are not paid on time. SIC can apply where an amended assessment creates a tax shortfall.
These charges matter because they can keep increasing while the underlying debt remains unpaid. For April to June 2026, the ATO’s General Interest Charge annual rate is 10.96%. For April to June 2026, the ATO’s General Interest Charge annual rate is 10.96%, while the Shortfall Interest Charge annual rate is 6.96%.
From 1 July 2025, ATO interest charges incurred from that date are no longer tax deductible. That means allowing interest to build can now be even more costly for businesses. It also makes early advice, remission requests and restructuring options more important where the debt is no longer manageable through ordinary trading.
Why many business owners wait too long
Most directors do not ignore tax debt on purpose. They are trying to keep the business running, hoping the next quarter improves cash flow, or are simply unsure what the right step is.
One of the strongest points made in the video is that the ATO pays close attention to behaviour. If there is no engagement, no payments and no communication, it becomes harder to argue that the situation is under control.
On the other hand, small actions can improve the position. Making voluntary payments, staying up to date with lodgements and communicating early all demonstrate that the business is attempting to address the debt rather than avoid it.
As outlined in Mackay Goodwin’s guide to 9 Tips for Managing Business Tax Debt, early engagement and practical action can help stabilise the situation before it escalates further.
When payment plans may help
Payment plans can work in the right circumstances. If the business can meet ongoing obligations and realistically maintain the repayment terms, a payment arrangement may help bring the debt under control.
However, this is where many businesses run into trouble. A payment plan only works if it is sustainable. If the business is already under pressure, adding repayments on top of existing obligations can create even more stress on cash flow.
As highlighted in the video, the key question is simple: can the business actually meet the arrangement while continuing to trade?
If the answer is no, the payment plan may only postpone a larger insolvency problem.
When remission may be an option
Remission is another option, but only in specific circumstances. It generally involves applying to reduce or remove interest and penalties rather than eliminating the underlying tax debt itself. In the video, this process is described as highly case-by-case and heavily dependent on the circumstances surrounding the debt.
For some businesses, genuine extenuating circumstances may support a remission application. For others, the ATO may not consider the circumstances strong enough.
Importantly, remission should not be viewed as a complete solution on its own. Even if interest and penalties are reduced, the business still needs a realistic strategy to deal with the remaining debt and ongoing obligations.
Remission can also support a broader restructuring strategy. If interest and penalties are reduced, the total debt position may become more manageable. In some cases, this may help bring a business closer to the Small Business Restructuring eligibility threshold or make a restructuring proposal more realistic for creditors.
That does not mean remission should be treated as a guaranteed result. It should be assessed as one part of the wider strategy, alongside the business’s cash flow, viability, current lodgements and creditor position.
The limits of informal solutions
Payment plans and remission can help in certain situations, but they are not always enough. They are generally more effective where:
- the business can meet current obligations
- cash flow remains relatively stable
- lodgements are up to date
- the debt can realistically be repaid over time
They become far less effective where:
- debt continues growing faster than repayments
- repayment arrangements cannot be sustained
- creditor pressure is increasing
- the business is already insolvent or close to insolvency
At that point, continuing to rely on informal arrangements can reduce the chances of recovery and limit the options available later. This is often where more structured insolvency solutions need to be considered.
When Small Business Restructuring makes sense
For viable businesses under pressure, Small Business Restructuring can provide a practical path forward. This process allows directors to remain in control of the business while putting a formal proposal to creditors to deal with the debt. Instead of trying to manage a growing liability month to month, the company can move toward a structured solution that addresses the underlying problem properly.
For many businesses, this creates breathing room and a clearer path forward while allowing the company to continue trading.
You can learn more about the process in Mackay Goodwin’s guide to The Benefits of a Small Business Restructuring. This option is often most suitable where the business still has customers, revenue and a viable future, but the debt burden has become too large to manage informally.
When Voluntary Administration may be required
If the position is more complex, Voluntary Administration may be the more appropriate option. This process allows an independent administrator to assess the company and determine the best outcome for creditors and the business itself. In some cases, it may lead to a restructure or Deed of Company Arrangement. In others, it may confirm that the business cannot continue operating.
Voluntary Administration can also provide valuable breathing space while decisions are made and creditor pressure is paused. You can read more about the process in Mackay Goodwin’s Guide to Voluntary Administration.
For many directors, the process replaces uncertainty with structure and allows decisions to be made from a more controlled position.
When Liquidation becomes the right step
Sometimes the business cannot be saved. In those situations, Liquidation may become the most appropriate option. While this is never an easy decision, delaying action can increase risks for directors, employees and creditors. Continuing to trade while insolvent may also expose directors to additional legal and financial consequences.
Understanding how the Liquidation process works can help directors make informed decisions earlier and avoid unnecessary panic. The important thing is not to assume Liquidation too early, but also not to avoid it when the business is no longer viable.
Director risk changes everything
ATO debt can become personal for directors. If obligations such as PAYG withholding or superannuation remain unpaid, there is a risk of a Director Penalty Notice being issued. Once that happens, timelines become critical and options can narrow quickly.
This is why early advice matters. The earlier the position is assessed, the more likely it is that directors can make informed decisions before pressure escalates further. If you are concerned about personal liability, Mackay Goodwin’s guide on What to Do If You Receive a Director Penalty Notice provides further insight.
What matters most right now
If your tax debt is growing, the focus should be on understanding the full picture and choosing the right path forward. That includes:
- understanding the true debt position
- identifying what is driving the debt
- being realistic about what the business can afford
- assessing whether informal or formal solutions are more appropriate
- seeking advice before options become limited
As discussed throughout the video, the ATO generally responds more positively when there is engagement, communication and a genuine plan to address the debt. Doing nothing is usually the worst option.
The right tax debt solution depends on your position
There is no single answer for every business. Some businesses will stabilise with a payment plan. Others may benefit from remission in limited circumstances. Many, however, require a more structured solution such as Small Business Restructuring or Voluntary Administration to properly address the debt and preserve the future of the business.
The key is understanding which position your business is actually in before the situation deteriorates further. If you are unsure where your business stands, speak with Mackay Goodwin. We will help you understand your options, assess whether the business remains viable, and guide you toward the most appropriate next step.
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