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A specialist lawyer has outlined the difficulties in defending clients with historical tax debts, as the ATO increasingly pursues older debts from before the COVID-19 pandemic.
ATO focus on historical tax debts creating ‘challenging environment’, warns lawyer
23 June 2025
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9 minute read
The ATO's increased focus on historical debts as part of its broader debt recovery action is raising a wide range of issues where taxpayers have these types of debts, according to HLS Tax Law principal Sarah Lancaster.
Speaking in a recent AuditCover webinar, Lancaster said while the ATO has said its debt book is stabilising, there is still a large amount of historical debt that remains outstanding that they are continuing to chase.
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She also noted that the ATO has been given additional funding by the government in recent years which has been focused in the area of debt recovery.
"It's a challenging environment for taxpayers at the moment where you've got historical tax debts or tax liabilities that are outstanding," said Lancaster.
"I think that one of the key themes that I've noticed over the last two to three years after the Covid holiday is that a lot of the historical debts are now being chased with some vigour."
Lancaster said the more intense focus on historical debts has brought a whole host of problems and challenges for many taxpayers, she said.
"It goes without saying that taxpayers have the burden of proving certain things in tax matters. It's very difficult to defend a tax liability in the courts. There are also rules around debts being due and payable on the face of an assessment notice or a BAS that's been issued, for example," she said.
When these challenges are combined with the historical nature of some of the older debts being pursued, this further exacerbates the issues for taxpayers and reduces their options, she warned.
Lancaster said the types of debts being pursued by the ATO precede Covid and can date back as far as the 2015-16 income year for some matters.
"Given the length of time, people's memories are waning, so a whole raft of challenges compound into making life difficult where you've got outstanding liabilities. I'm finding that the more historical these liabilities are, the harder it is for taxpayers to make choices in terms of dealing with those debts," she said.
She also noted that the use of director penalty notices (DPNs) by the ATO had increased in the past few years.
This is partly due to the fact that the types of taxes that the ATO can recover through issuing DPNs had broadened.
"GST didn't used to be a tax that could be recovered under the director penalty regime and that's since changed.
"The breadth of taxes that has come into play has also changed. So it's not surprising that in a lot of circumstances that those director penalties are an enforcement tool that we see often."
Speaking in the same webinar, Acting deputy Taxation Ombudsman Jarrod Joseph said with the ATO's total debt book still around $105 billion and a large proportion owed by small business, it is not surprising that the recovering business debts such as superannuation, PAYG withholding and GST remains a major focus for the ATO.
"The primary tool to collect these taxes is director penalty notices (DPNs), which makes the director personally liable for the debts of the business," said Joseph.
Once DPNs are issued, there are only a limited range of defences and challenging them can be quite difficult, he noted.
Joseph said the Tax Ombudsman is seeing a lot of concerns raised by directors or former directors around the accuracy of notices or not even receiving notices or being aware they had a debt.
"It's taking people by surprise," he said.
There are also issues emerging where the director has already wound up their business and is then issued with the DPN.
Joseph explained that in these cases, the former director often faces difficulties in communicating with the ATO on these matters.
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