Tax Disputes Rising: ATO Sheds Light On 2023-2027 Strategies

With tax refunds arriving a little lighter than in previous years, many taxpayers have been left wondering why the ATO is taking such a close look at their finances. The answer lies in the ATO’s ongoing debt recovery strategy, first flagged in its 2023-24 Corporate Plan and now carried forward under the ATO’s current 2026-27 Corporate Plan and broader ATO Strategy 2026-2030. Three years on, the crackdown has not eased. If anything, it has intensified, and a significant change to how interest on ATO debts is taxed has made the cost of falling behind even higher.

The ATO’s Corporate Plan, Then and Now

On 27 July 2023, the Australian Taxation Office released its Corporate Plan covering 2023-24 to 2026-27. That plan targeted small business tax performance, multinational tax performance and superannuation guarantee integrity, and flagged rental property deductions, work-related expenses and capital gains tax as areas of extra scrutiny for landlords, work-from-home claimants and investors.

That plan has now run its course and been superseded by the ATO’s Corporate Plan 2026-27, part of its longer-term ATO Strategy 2026-2030. The current plan continues to prioritise closing the “payment gap” between tax owed and tax collected, and is explicit about embedding debt and payment considerations into every taxpayer interaction, rather than dealing with debt only after it has built up. For taxpayers, the direction of travel is unchanged: the ATO wants payment aligned with lodgment, and is less willing than in prior years to let debts sit unaddressed.

Tax Disputes in 2026

The ATO’s crackdown continues to coincide with elevated business insolvencies. Small businesses now account for an estimated $35.9 billion of the ATO’s $54.2 billion in total collectable tax debt, according to the Australian National Audit Office’s 2026 review of the ATO’s small business debt collection (ANAO, 2026). In response, the ATO has continued to ramp up enforcement, including Director Penalty Notices, garnishee notices and asset freezing, and has been reported to be issuing DPNs and winding-up applications in far higher volumes than in 2023.

The ATO remains willing to work with taxpayers who engage early, but its patience for informal delay has not increased. Payment arrangements proposing terms longer than roughly two years remain difficult to secure, particularly for high-value or aged debts, and directors and business owners with such debts should expect continued, close scrutiny.

A New Cost of Delay: ATO Interest Charges No Longer Tax-Deductible

One of the most significant changes since this article was first published has nothing to do with enforcement powers and everything to do with cost. From 1 July 2025, the general interest charge (GIC) and shortfall interest charge (SIC) that the ATO applies to unpaid and understated tax debts are no longer tax-deductible. Previously, taxpayers could at least offset some of the pain of ATO interest against their taxable income; that offset is now gone for interest incurred on or after 1 July 2025, even where the underlying debt relates to an earlier income year.

In practical terms, this makes carrying an ATO debt materially more expensive than it was when this article was first published, on top of an already elevated GIC rate. Businesses and individuals sitting on outstanding tax debts should factor this into any decision about whether to negotiate a payment plan, restructure, or otherwise resolve the debt sooner rather than later.

Unable to Pay Your Debts?

If taxpayers do not engage with the ATO to address outstanding debts, enforcement action can escalate quickly.

The ATO retains discretion to:

1. Issue garnishee notices and director penalty notices (‘DPN’);
2. Report outstanding tax debts to a credit reporting bureau if action to manage the debt is not taken within 28 days of a notice of intent; and
3. Commence legal action, including issuing summonses for non-lodgment, and progressing personal and corporate insolvency action, including creditors’ petitions and winding-up proceedings.

Director Penalty Notices in 2026

Company directors are legally responsible for ensuring their company meets its Pay As You Go (PAYG) withholding, Superannuation Guarantee Charge (SGC) and Goods and Services Tax (GST) obligations.

Where a company has outstanding debt in these categories, the ATO can pursue the director personally by issuing a DPN. A DPN sets out the specific obligations the company has not met and makes the director personally liable for those amounts.

There are two types:

1. A Non-Lockdown DPN, issued where the company has lodged its BAS, instalment activity statements and SGC statements on time but has not paid the resulting debt; and
2. A Lockdown DPN, issued where the company has failed to lodge its BAS or SGC statements within the statutory time limits, in addition to not paying the debt owed.

For a Non-Lockdown DPN, the director generally has 21 days from the date of the notice (not the date it is served) to avoid personal liability, by ensuring the company pays the debt in full, or by causing a voluntary administrator, a small business restructuring (SBR) practitioner, or a liquidator to be appointed to the company within that window. A Lockdown DPN offers no such 21-day grace period: because the underlying statements were never lodged, personal liability attaches immediately and cannot be avoided by later appointing an administrator or liquidator.

A common misconception is that simply entering into a payment arrangement with the ATO will remit a Non-Lockdown DPN. It will not, by itself, extinguish the director’s personal liability under the legislation; the ATO may agree not to pursue recovery while a plan is being honoured, but the underlying liability remains and can be enforced if the arrangement later fails. Directors should not assume a payment plan alone protects them and should seek advice on the formal remission options within the 21-day period.

Summary: Tax Disputes in 2026

The ATO’s sustained debt recovery strategy, now running under its 2026-27 Corporate Plan and 2026-2030 Strategy, shows no sign of softening. Small business tax debt, multinational tax performance and superannuation guarantee integrity remain firmly in focus, and the removal of the tax deduction for GIC and SIC from 1 July 2025 has raised the real cost of any delay. Combined with continued high rates of DPN issuance, garnishee action and winding-up proceedings, the message from the ATO is unchanged from 2023, only firmer: compliance is paramount, and taxpayers who fall behind should expect consequences, and should address them early.

Ramsden Lawyers: Navigating Tax Disputes

If you are aware of outstanding taxation obligations, whether personal or through a company, you should seek legal advice at the earliest opportunity. This is especially true if you have received, or expect to receive, a Director Penalty Notice, given the strict 21-day timeframe for a Non-Lockdown DPN.

Ramsden Lawyers’ Taxation Advice and Disputes and Insolvency teams regularly advise directors and businesses on ATO debt recovery action, DPNs, and restructuring options, including through our Litigation and Dispute Resolution practice. See also our related article on the ATO’s crackdown on Director Penalty Notices.

If you or your business are unsure about your tax position, or need help navigating a DPN, garnishee notice or winding-up application, contact Ramsden Lawyers today. Early, proactive engagement is often the difference between a manageable outcome and a costly legal dispute.

The content of this article is intended to provide general guidance on the subject matter and must not be relied on as legal advice. Specific advice should be sought about your circumstances.

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