- Australian small businesses now owe $35.9 billion in tax debt, largely driven by cash flow timing and cost pressures.
- Rising operating costs and slower customer payments continue to be the main reasons SMEs fall behind.
- The ATO is taking a more active approach to debt recovery again, so early engagement matters.
- Finance can help bridge short-term cash flow gaps where the business is otherwise viable.
Australian small businesses now owe $35.9 billion in collectable tax debt, according to a recent audit by the Australian National Audit Office (ANAO) [1].
That's a headline-grabbing number, and it reflects what many SME owners are dealing with behind the scenes: cash isn’t arriving when it’s needed.
When cash is tight, most owners focus on paying staff, suppliers and the bills that keep the business moving. Tax often ends up further down the list because delaying a payment doesn't usually affect tomorrow's trading.
If your business has fallen behind, you're not alone. What matters now is knowing what’s actually available before the debt limits your options.
Why has small business tax debt grown?
The ANAO's $35.9 billion figure reflects the cash flow challenges many businesses have been navigating over the past few years. Tax debt is often the result, rather than the starting point.
For one, operating costs have climbed across almost every industry. Rent, insurance, wages, utilities and supplier costs have all increased, each one squeezing margins further.
At the same time, getting paid hasn't become any easier. Our recent poll found that 33% of Australian SMEs wait between 14 and 30 days to get paid. When those payments arrive later than expected, the cash set aside for BAS, GST or income tax often gets used to cover more immediate expenses instead.
Then there are payroll costs, super and everyday business expenses. Most owners will prioritise paying employees and suppliers before almost anything else.
Staff expect to be paid, and suppliers can stop delivering goods or services if invoices remain outstanding. Delaying a tax payment, however, usually doesn't stop the business operating the next day, which is why it often gets pushed back.
The downside is that the balance can grow surprisingly quickly if cash flow doesn't improve.
Does this mean the ATO is increasing debt recovery?
The ATO has been gradually stepping back into stronger debt collection after the softer COVID-era approach wound down.
That doesn't mean every business with outstanding tax should expect immediate enforcement action. The ATO generally encourages businesses to engage before stronger recovery measures become necessary.
Depending on your circumstances, that could include:
- Payment reminders and follow-up contact.
- Payment plans where appropriate.
- Firmer recovery action if businesses repeatedly ignore the debt or don't engage.
Keep in mind that, depending on the type of tax debt or how long it's left unresolved, it may also affect your ability to access finance or its credit profile.
Communicating early generally gives you more options than waiting until the debt has grown or recovery action has already started.
What should you do if your business is behind on tax?
If you've fallen behind, the worst thing you can do is hope the problem sorts itself out. A few practical steps can help you regain control.
Don't ignore it
When you wait, interest and penalties can continue to build, and a tax bill that felt manageable a few months ago suddenly looks very different today. Even if you can't pay it all immediately, it’s better to address it sooner rather than later.
Understand what you owe
Before making any decisions, get a clear picture of your outstanding obligations. That could include:
Knowing exactly what's overdue makes it much easier to prioritise your next steps and avoid unexpected liabilities.
Review your cash flow
Next, look beyond the tax bill itself and ask yourself:
- What major expenses are coming up?
- Which customer invoices are still outstanding?
- What does your cash flow look like over the next 3-6 months?
You're trying to answer one key question: is the business short of cash, or short of time?
If you've got customer payments due over the next few weeks, the issue may simply be timing. Bridging that gap could be all that's needed.
But if cash flow is still likely to be tight once those payments arrive, it's worth taking a closer look at your pricing, costs or funding strategy.
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Contact the ATO early
If you're struggling to pay, don't wait for multiple reminders before reaching out.
Businesses that engage with the ATO early generally have more flexibility, including the possibility of payment arrangements where appropriate.
Even if you're unsure what the outcome will be, starting the conversation is usually better than avoiding it.
When could business finance help?
Borrowing money to pay a tax bill might sound counterintuitive, and it’s easy to assume that lenders won’t consider funding to clear ATO debt. In practice, it’s an option many businesses use when the issue is timing rather than performance.
It can be a sensible decision, particularly if:
- Your business is viable and trading well overall
- Cash flow is temporarily tight
- You're waiting on customer payments
- Paying your tax bill would leave you without enough money to operate confidently
- You’ve explored the total cost of leaving the debt with the ATO versus other funding options
For example, imagine you've got several large invoices due to be paid over the next month, but your BAS is due now. Getting a short-term loan to clear the tax debt could help prevent the balance from growing while allowing you to pay staff, buy stock or take on bigger contracts.
In situations like this, businesses typically use invoice finance (if customer payments are delayed) or an unsecured loan (for broader working capital gaps), depending on what’s driving the cash flow issue.
How to avoid falling behind again
Most tax debt builds gradually. A few late payments here, a couple of slow-paying customers there, plus some unexpected expenses, and it can quickly snowball into a much larger balance.
Some good habits include:
- Forecast your cash flow regularly so you can spot pressure before it becomes urgent
- Set aside money for tax throughout the year where possible
- Invoice customers promptly and follow up overdue payments consistently
- Review funding options before cash flow becomes critical, rather than after
- Speak to your accountant early if you're starting to fall behind
Remember, cash flow pressure is part of running a business, but allowing tax debt to grow usually makes it harder to recover.
Act early while your options are still open
Behind that $35.9 billion figure are thousands of businesses dealing with the same challenges: rising costs, slower customer payments and tighter cash flow.
But falling behind on tax doesn't automatically mean your business is in trouble. It usually means cash flow needs attention before it becomes harder to manage.
Understanding what you owe is the first step. From there, you can assess your cash flow, work with the ATO if needed and decide whether finance could help bridge the gap. The sooner you understand your position, the more options you're likely to have.
