The Australian Tax Office (ATO) said the number of debts owed to small businesses is starting to fall after a significant increase in recent years.

Before the COVID-19 pandemic, the estimated value of collectible small business debt was $16.6 billion, which has now reached $34.3 billion in 2023-2024.

Despite this significant increase, the ATO said the growth in collectible debts was starting to slow, with the amount of collectible small business debts this year only rising slightly from $33.4 billion in 2022-23.

However, according to information from the Tax Office, companies that are able to settle their tax liabilities still decide to lower the priority of this payment.

ATO Deputy Commissioner Rob Thomson said if a business is in a position to repay its tax debts, it is advised to do so rather than “holding it off”.

“The growth in debt collections is slowing and the Australian Tax Office (ATO) recognises that most small businesses are doing the right thing, with almost 80 per cent of their debts being paid on time and in full within 90 days,” he said.

“However, too many small businesses that have the ability to pay are choosing to deprioritise paying tax and pension contributions.”

The Australian Tax Office (ATO) has identified that the majority of collectible debts are debts incurred by businesses and these are debts that are settled on business tax returns.

This amount includes tax deducted from salaries and wages, GST, the Pension Guarantee and outstanding business deductions.

ATO Deputy Commissioner Anita Challen said these outstanding payments from small businesses were having a significant impact on the wider economy and society.

“It’s definitely a very significant impact when you consider what that money could be used for in really tough times from a broader economic perspective,” she said.

“We are very aware of the impact that tax ineligibility has on the community, which is why we have returned to our normal debt recovery processes.

“Taxes fund vital services that all Australians benefit from and every taxpayer’s contribution makes a difference.”

The Australian Tax Office (ATO) said interest on unpaid tax debts is calculated daily and the current general interest rate for the July to September 2024 quarter will be 11.36 per cent.

Mr Thomson said the Australian Taxation Office (ATO) understood the difficult economic situation facing all Australians but its important role was to ensure all businesses met their tax and superannuation obligations.

“The ATO is committed to ensuring that any businesses that fail to meet their obligations do not gain an unfair competitive advantage over other businesses that pay on time and treat employees who contribute to the functioning of their businesses fairly,” Mr Thomson said.

“It also makes good business sense to pay your installments on time and in full, which helps reduce your interest payments.”