The Reality of Today’s Market: Tax Debt and Financial Pressure
In today’s challenging economic environment — characterized by high interest rates, declining consumer spending, and strained cash flow — many businesses have turned to ATO payment plans to manage their tax debt. At first glance, these structured plans seem like a safe and practical solution, allowing businesses to spread out repayments over time. In reality, they often create long-term financial strain rather than providing real relief.
With interest rates remaining high and ATO enforcement actions increasing, businesses must reassess whether payment plans are truly their best option or simply a temporary delay before financial distress worsens. Upcoming legislative changes to General Interest Charges (GIC) and Shortfall Interest Charge (SIC) will further compound the issue, increasing the cost burden and making repayment plans even less viable.
The Downsides of ATO Payment Plans: A Growing Burden
While ATO payment plans can provide short-term relief, they come with significant long-term drawbacks—many of which are becoming increasingly severe and more pronounced than ever in the current economic landscape.
Key Issues with Payment Plans:
a. High Interest Rates & Unrelenting Debt
The ATO’s General Interest Charge (GIC) currently sits at 11.34% and compounds daily. This means businesses end up paying substantially more than their original tax debt. With borrowing costs rising and consumer spending declining, many businesses are struggling to keep up — making GIC-driven debt even harder to manage.
b. Cash Flow Strain
Monthly repayments lock up vital cash flow, preventing businesses from reinvesting in wages, inventory, or growth opportunities. This is particularly harmful in industries with seasonal revenue fluctuations or those with already tight margins, where maintaining cash flow is critical to survival.
c. Risk of Default & Aggressive ATO Enforcement
A missed or late payment (even by a day) can trigger immediate enforcement actions, such as:
- Garnishee notices — allowing the ATO to withdraw funds directly from a business’s bank account or even a debtor
- Credit reporting — impacting the business’s ability to secure finance.
- Director Penalty Notices (DPNs) — making directors personally liable for tax debts
- Cancellation of Payment Plan
Variations in the ATO’s enforcement process means that escalation occurs at the first default in some cases and can sometimes be delayed until two or three defaults occur in other cases.
d. Ongoing Compliance Requirements
ATO payment plans only cover existing tax debt. All new BAS lodgements and payments must be made on time — or the business is deemed in default. This forces businesses into a cycle where they are constantly paying off old debt while struggling to keep up with new tax obligations.
e. The Looming Changes to GIC/SIC Tax Deductibility
From 1 July 2025, GIC and SIC will no longer be tax-deductible if proposed legislation passes. This means businesses will:
- Lose the ability to offset interest costs against taxable income.
- Face an even higher effective tax burden on ATO debt.
- The impact? ATO debt becomes even more expensive to manage, further straining cash flow.
Given these challenges, businesses that remain on payment plans may be putting themselves in a worse financial position than they realise.
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The Rise of Small Business Restructuring (SBR): A Better Alternative
With more businesses struggling with repaying tax debt, the government-legislated Small Business Restructuring (SBR) process may prove to be a more viable alternative to traditional payment plans.
Unlike standard ATO repayment plans, SBR offers:
✅ Debt reductions of up to 75% or more
✅ No accumulating interest charges — unlike GIC-driven payment plans
✅ Legal protection — once an SBR plan is in place, the ATO cannot take enforcement action
✅ Restored cash flow — allowing businesses to reinvest in growth
The ATO consistently votes in favour of well-structured SBR proposals, reinforcing the legitimacy of this solution. At de Jonge Read, we have a 90%+ success rate in securing SBR approvals by crafting strategic, high-quality proposals that align with ATO expectations. Our expertise in ATO negotiations and tailored restructuring strategies ensures businesses achieve the best possible financial outcome.
Let us illustrate how we have leveraged SBRs to achieve significant savings compared with the true impact of an ATO payment plan.
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Our client in the professional services industry had $300,000 in ATO debt and was managing repayments through a 24-month payment plan of $12,500 per month. While this provided a path to repayment, it also placed ongoing strain on cash flow, limiting their ability to reinvest in growth and hire new staff — despite being operationally sound and consistently meeting their obligations.
With the high-interest GIC of 11.34%, they were set to incur an additional $30,000+ in interest costs, bringing their total repayment to over $330,000. This financial strain restricted their ability to expand, keeping them stuck in a cycle of repayments rather than directing funds toward business growth.
Through an SBR, we successfully negotiated a $60,000 settlement — saving them over $270,000 in principal and interest. This eliminated their monthly $12,500 repayment, immediately restoring cash flow and enabling them to hire new staff and expand their operations.
It is important for advisors to recognise that even without the anticipated removal of tax-deductibility for GIC/SIC in 2025, businesses are already paying substantial interest and penalties that can be entirely avoided. By taking action now, your clients can potentially redirect these savings into growth investment rather than costly repayment plans.
This is just one of many businesses that have successfully turned things around through utilising the SBR alternative instead of burdening themselves with a high-interest ATO payment plan.
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The Urgency to Act
With rising costs, increased ATO enforcement, and upcoming GIC/SIC tax changes, advisors must proactively help their clients reassess their approach to tax debt before the financial pressure escalates.
Clients who are on an ATO payment plan or intend to commit to one may not realise the long-term risks and implications. Hence advisors play a key role in guiding them toward better financial strategies that protect their cash flow and business viability.
Risks of Staying on an ATO payment plan:
- Paying excessive interest and penalties
- Ongoing cash flow strain limiting business growth
- Higher tax burdens when GIC tax deductibility ends in 2025
- Potential ATO enforcement actions that risk business viability
- Substantial increase in profitability required to stay afloat
Why Refer Clients on an ATO Payment Plan to de Jonge Read?
At de Jonge Read, we have a higher than 90% success rate in helping businesses develop and implement an SBR plan that achieves:
- Significant Debt Reduction – Reduce debt by up to 80% or more
- Immediate Interest Savings – Eliminate the burden of high-interest charges
- ATO Support & Protection – A government-backed process with strong ATO support, eliminating the risk of director penalties or enforcement once approved
- Restored Cash Flow – Free up funds to reinvest in growth
SBR is not just an alternative — it can be a more viable financial strategy for businesses looking to regain control and move forward with confidence.
If you have clients currently on an ATO payment plan or considering one, they may be unaware of the significant savings and security available through restructuring.
Contact the de Jonge Read team today to discuss how we can help your clients take the next step.
Should you have clients or associates that you know are struggling with financial issues or need assistance in reviewing their business affairs in preparation for what’s around the corner, our team of Strategists would be pleased to discuss options that are available on how to best design and implement insolvency strategies. Contact us now on p. 1300 765 080 | ua.mo1741263366c.arj1741263366d@ofn1741263366i1741263366
Did you know?
Phoenixing is another name of business restructure. Read more about business restructures and when this can be an option for you.
