In November 2025, media reports said the Australian Taxation Office had lodged a claim to recover about $7.35 million in unpaid income tax from fitness entrepreneur Sam Wood. Whatever the outcome of that matter, the headline was a wake-up call for business owners: a large tax bill can build up for anyone, including people running successful businesses.
This guide uses that story only as a starting point. It explains how ATO debts grow, what the ATO can do to collect them, and the practical options you have if you owe money, with every rate and rule checked against ATO pages on 9 October 2026.
It is written for business owners, company directors and sole traders who are behind with the ATO or worried they soon will be. If interest is already building on your account, our guide to ATO interest on overdue tax shows what it is costing you.
Key takeaways
- The ATO’s collectable debt was over $50 billion at 30 June 2025, and small business accounted for $35.9 billion of it.
- The general interest charge is 11.51% a year for October to December 2026, compounding daily, and it is no longer tax deductible.
- Late lodgment adds a failure to lodge penalty of up to $1,820 per document for small entities.
- Directors can be made personally liable for unpaid PAYG withholding, GST and super guarantee charge.
- Debts of $200,000 or less can usually go on a payment plan online, and the ATO can remit interest in the right circumstances.
ATO tax debt at a glance
| Item | Current position | Source |
|---|---|---|
| General interest charge (Oct-Dec 2026) | 11.51% a year, 0.03153425% a day, compounding | ATO GIC rates |
| Failure to lodge penalty | 1 penalty unit ($364) per 28 days late, up to 5 units for small entities | ATO FTL penalty |
| Director penalties | PAYG withholding, GST and super guarantee charge | ATO director penalty regime |
| Credit reporting | ABN holders with $100,000+ overdue more than 90 days and not engaging | ATO disclosure of business tax debts |
| Online payment plans | Debts of $200,000 or less; GIC keeps accruing | ATO payment plans |
Checked against the ATO pages linked in the table on 9 October 2026.
What does the Sam Wood story tell business owners?
According to those November 2025 reports, the ATO’s claim related mainly to income tax for the 2021-22 to 2023-24 years, with a small amount of penalties and interest. We have no information beyond what was reported, and this article makes no comment on the merits of that matter.
The general lesson is the one that matters for you. Tax that is not paid on time keeps growing through interest and penalties, and the ATO has a wide set of legal tools to collect it. The ATO’s Deputy Commissioner said in a September 2025 speech that collectable debt grew from $26.5 billion in 2019 to over $50 billion in 2025, and that too many businesses are pushing tax and super to the bottom of the pile.
The taxes that most often go unpaid
- PAYG withholding: tax withheld from employees’ wages. It is not your money to use for cash flow.
- GST: tax you collect from customers and report on your business activity statement.
- Income tax: tax on your own or your company’s profit, often the biggest single bill.
- Super guarantee: super owed for employees, now due within 7 business days of payday under Payday Super.
How does a small tax issue snowball into a big debt?
Most large ATO debts start small: one missed BAS, a quarter of super paid late, or GST used to cover a supplier bill with the plan to catch up later. Later often never comes, and the charges below keep stacking up.
Penalties and interest
- Failure to lodge penalty: one penalty unit for every 28 days a return or statement is late, up to 5 units for small entities. With a penalty unit of $364 from 1 July 2026, that is up to $1,820 per document. Our guide to the overdue tax return penalty covers this in detail.
- General interest charge: the ATO’s general interest charge applies to any amount paid late, is calculated daily and compounds. For October to December 2026 it is 11.51% a year.
Interest incurred on or after 1 July 2025 is also no longer tax deductible, so it costs more than the headline rate suggests.
Worked example: an unpaid BAS
A small business owes $40,000 on its activity statements and does not pay for 180 days.
Interest at the current daily rate: $40,000 x ((1 + 0.0003153425)^180 – 1) = about $2,336, assuming the rate stays at 11.51% for the whole period.
If the statements were also lodged more than 112 days late, each one can attract a failure to lodge penalty of up to $1,820. None of these amounts is deductible.
The most common triggers
- Late super: from 1 July 2026 a missed Payday Super contribution can attract the new super guarantee charge, which adds notional earnings, a 60% administrative uplift and possible late payment penalties. See our guide to unpaid super penalties.
- Using GST and PAYG as working capital: it feels like a short-term loan, but it is money held for the ATO and employees.
- Low PAYG instalments: under-estimating income leaves a large bill at the end of the year.
- Ignoring letters: the debt keeps growing, and the ATO reads silence as unwillingness to engage.
Keep an eye on your ATO account too. If you see unexpected activity, our explainer on accounting action in progress explains what that status usually means.
What can the ATO do if a debt is not paid?
The ATO starts with letters and calls. If those do not work, it can use the firmer actions below, and its legal actions include wind-up and bankruptcy applications.
| ATO action | What it means |
|---|---|
| Director penalty notice | Directors become personally liable for the company’s unpaid PAYG withholding, GST and super guarantee charge. The ATO can recover the penalty 21 days after issuing the notice. In 2024-25 the ATO issued over 84,000 of them. |
| Garnishee notice | The ATO directs your bank, a customer or someone else who owes you money to pay the ATO instead. It sends a warning letter first and serves you a copy of the notice. |
| Credit reporting | Business debts of $100,000 or more overdue by more than 90 days can be reported to credit reporting bureaus if you are not engaging with the ATO. |
| Departure prohibition order | Stops you leaving Australia if you have a tax liability and the ATO considers the order desirable to make sure it is paid. |
| Wind-up or bankruptcy | Court action to wind up a company or bankrupt an individual. Our guide to bankruptcy vs liquidation explains the difference. |
Sources: ATO director penalty regime, garnishee notice, disclosure of business tax debts and departure prohibition orders pages; DPN numbers from the Deputy Commissioner’s speech.
Director penalties have a hard edge. If PAYG withholding or GST is reported within 3 months of the due date, a director can still clear the penalty by paying, appointing an administrator or small business restructuring practitioner, or winding up the company. If it is reported late or not at all, only full payment clears it. Read more in our director penalty notice guide.
What are your options for resolving a tax debt?
Set up a payment plan
If you agree with the debt but cannot pay it all now, a payment plan is usually the first step. Debts of $200,000 or less can often be set up online through ATO online services. The ATO’s payment plans page warns that GIC keeps accruing while you pay, and a missed instalment can make the whole balance due. Check whether you qualify with our guide to payment plan eligibility.
- Lodge every outstanding return and activity statement first.
- Work out what you can realistically pay each week or fortnight.
- Have your income, expenses and assets ready to explain.
Ask for remission of interest and penalties
The ATO can remit the general interest charge in full or in part. Under its policy PS LA 2011/12, remission may be appropriate where the delay was not your fault and you took steps to reduce it, where you contributed to the delay but it would be fair and reasonable to remit, or where special circumstances apply. You need to explain what happened and give evidence, such as medical certificates. Our GIC remission guide walks through the request.
Object if the assessment is wrong
If you think the ATO has the amount wrong, you can lodge a formal objection. The time limit is generally 2 years for most individuals and small and medium businesses and 4 years for other taxpayers, with 60-day limits for some decisions. An objection needs specific reasons and supporting evidence.
| Option | Best for | Key requirement |
|---|---|---|
| Payment plan | You agree with the debt but need time | A realistic budget and all lodgments up to date |
| Remission | Interest or penalties grew because of circumstances outside your control | Evidence of what happened and the steps you took |
| Objection | The assessment is legally or factually wrong | Written reasons and evidence, lodged within the time limit |
Rule of thumb: lodge on time even when you cannot pay. Lodging stops failure to lodge penalties and shows the ATO you are engaging, which matters for every option above.
Common mistakes that make a tax debt worse
- Not lodging because you cannot pay. Penalties then pile on top of the interest.
- Using GST and PAYG withholding to fund the business. For companies this can lead straight to director penalties.
- Ignoring the ATO. Silence removes your chance to negotiate and moves the ATO to firmer action.
- Agreeing to a plan you cannot keep. A defaulted plan makes the full balance payable and makes the next plan harder to get.
- Missing super deadlines under Payday Super. Late super now attracts a charge with a 60% uplift on top of the shortfall.
How can a tax professional help?
A registered tax agent can review your full position, bring lodgments up to date, work out what you can afford and deal with the ATO on your behalf. We prepare payment plan proposals and remission requests with the evidence the ATO needs to see, and we look for errors that may support an objection.
If you are not sure who to trust with this, our guide to finding a registered tax agent in Australia explains what to check.
FAQ about ATO tax debt
What is the first thing I should do if I get an ATO debt letter?
Read it, check the amount and the tax periods it covers, then contact the ATO or a registered tax agent straight away. Lodge anything outstanding. Early contact keeps your options open, such as a payment plan, and the ATO considers how you have engaged when it decides on firmer action.
Can I negotiate to pay less than I owe?
The ATO generally expects the tax itself to be paid in full. What may be reduced is the general interest charge and some penalties. You can ask for remission, but you need to explain what happened and provide evidence, and the ATO assesses each request against its published remission policy.
Does a payment plan stop the interest?
No. The ATO states that debts on a payment plan continue to accrue the general interest charge, which compounds daily. A plan stops more serious recovery action while you keep to it, but paying the debt off faster is still the cheapest outcome.
Can a company director be personally liable for company tax debts?
Yes. Under the director penalty regime the ATO can make directors personally liable for the company’s unpaid PAYG withholding, GST and super guarantee charge. It can recover the penalty 21 days after issuing a director penalty notice, and late-reported debts can only be cleared by paying them in full.
Is ATO interest tax deductible?
Not any more for new interest. The general interest charge and shortfall interest charge incurred on or after 1 July 2025 cannot be claimed as a tax deduction, so every day a debt runs late costs you in after-tax dollars.
Talk to specialist before it costs you
15-minute discovery call. No obligation, no jargon.
Talk to a registered tax agent
You do not have to deal with an ATO debt alone. Nanak Accountants helps individuals, sole traders and companies get lodgments up to date, set up payment plans and request remission of interest and penalties. Call 1300 626 258, book a free 15 minute consultation or visit nanakaccountants.com.au.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO general interest charge, failure to lodge penalty, firmer action, director penalty, garnishee, disclosure of business tax debts, departure prohibition order, payment plan, objection time limit and Payday Super pages, PS LA 2011/12 and the ATO Deputy Commissioner’s speech of 5 September 2025. Details of the Sam Wood matter are taken from media reports on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
