Small business restructuring and ATO debt: can SBR deal with what you owe the ATO?
Yes. Small business restructuring (SBR) can deal with most of a company’s ATO debt, and for many small businesses the ATO is the largest creditor in the plan. Tax debts owed when the restructuring begins, such as GST, PAYG withholding, income tax and the interest on them, are dealt with alongside the company’s other unsecured debts. They don’t have to be paid before the plan. What the company must do first is lodge its outstanding returns and activity statements and pay employee entitlements that are due, including super. Because the ATO is often the majority creditor by value, its vote often decides whether the plan is accepted.
What happens to the ATO when you appoint a restructuring practitioner
- Recovery action is paused. Like other unsecured creditors, the ATO can’t begin, continue or enforce a claim against the company without the practitioner’s consent or the court’s permission while the restructuring is under way.
- Winding-up applications. If the ATO has already applied to wind up the company, the court must adjourn the hearing if continuing the restructuring is in the company’s interests. See can the ATO wind up my company?
- Director penalties are separate. The pause on recovery against the company is not a pause on director penalties. See the section on director penalty notices below.
Which ATO debts an SBR plan covers
| ATO debt | Treatment in SBR |
|---|---|
| GST, PAYG withholding and income tax owed when the restructuring begins | Dealt with in the plan, ranking equally with other unsecured debts |
| General interest charge and penalties on those debts up to the start of the restructuring | Dealt with in the plan |
| Super guarantee charge (SGC) for employees who are not directors or their relatives | Super that is due must be paid before the plan goes to creditors, or the company must be substantially complying |
| SGC for directors and their relatives above the $2,000 protected amount, SGC penalties and interest | The ATO expects these to be included in the plan |
| Tax that arises after the restructuring begins | Not part of the plan. Must be lodged and paid in full and on time |
| Director penalties (personal liability of the director) | Not cancelled by the plan, unless remitted by appointing the practitioner within 21 days of a non-lockdown notice |
What must be done before the plan goes to creditors
- Lodge. All outstanding tax returns, activity statements, notices and other documents required under tax laws must be lodged. The ATO assesses each outstanding lodgement separately. Where the company relies on substantial compliance, it must show it took reasonable steps and that external factors prevented it from finishing.
- Pay employee entitlements that are due, including super. The ATO notes that SGC is not itself an employee entitlement under the Corporations Act, but paying outstanding SGC so that contributions reach employees’ super funds can help show substantial compliance.
- Don’t pay the old tax debt. The tax debt itself does not have to be paid before the plan. Paying a debt owed at the start of the restructuring is outside the ordinary course of business and needs the practitioner’s consent.
The ATO says that if a plan is issued to creditors before these obligations are met, the restructuring will terminate. Start on the lodgements the day you decide to restructure. See SBR eligibility for the full checklist.
Is ATO debt the main problem?
We can look at your ATO account, your lodgements and your director penalty position with you, and tell you whether SBR is likely to work. Book a free 30-minute call with Luke D’Costa, Senior Manager – Debt Strategist.
Book a free 30-minute call Sydney 02 9660 3532 · Brisbane 07 3868 1888
How the ATO decides how to vote
The ATO assesses each plan on its merits. It generally supports a plan if creditors would receive more, within a reasonable time, than they would in a winding up, and there are no public interest concerns or risks. It says it supports financially viable small businesses but takes a firm approach with businesses that pose a risk to the tax system or have poor compliance histories. The common reasons it may not support a plan are:
- director or related-entity loan accounts have not been repaid
- a poor tax compliance history
- tax liabilities have not been paid
- the plan would give the business an unfair advantage over other businesses.
Where the ATO is a major creditor, it reviews draft plans and gives feedback if it receives the draft and all supporting information at least five full business days before the plan is due to go to creditors. It won’t consider a plan until it has everything. If the ATO decides not to support a plan, that decision can’t be reviewed, and the plan can’t be changed once voting begins. Our small business restructuring guide lists the supporting information the ATO asks for.
Director penalty notices
- Non-lockdown notice, acted on within 21 days. Appointing a restructuring practitioner within the 21 days remits the penalty.
- Lockdown penalties, or a notice not acted on within 21 days. A successful SBR does not remit them. The ATO says director penalty liability runs parallel to the company’s liability: plan payments may reduce the director penalty, but the director remains personally liable for the balance.
If you have received a director penalty notice, read SBR and director penalty notices before deciding on dates. The 21 days are calendar days, and weekends and public holidays count.
Tax credits and refunds during the plan
- Credits for periods before the restructuring are applied to pre-restructuring tax debts, even if those debts are later released under the plan. This includes research and development tax incentive amounts for those periods.
- Credits arising during the plan are applied first to new tax liabilities, and any excess to pre-restructuring debts.
- After the plan is completed, credits for later periods are generally refunded if no new liabilities remain.
The ATO has no discretion over this offsetting, so factor expected credits into the plan and the cash flow forecast.
After the plan is accepted
The company must meet every new reporting and payment obligation in full and on time. The ATO says that if it doesn’t, the ATO may take stronger enforcement action even if the company is otherwise meeting its plan payments, and that failing to manage ongoing obligations may put the plan’s viability at risk. See what happens if a company can’t keep up its SBR plan.
SBR or an ATO payment plan?
| ATO payment plan | Small business restructuring | |
|---|---|---|
| What is paid | The full debt, plus general interest charge while the plan runs | What the restructuring plan offers, which can be less than the full debt |
| Other creditors | Not included. Suppliers and lenders can still take action | All unsecured creditors are dealt with in one plan if it is accepted |
| Who decides | The ATO | Creditors, by a majority in value of those who vote. The ATO’s vote is often decisive |
| Formal process | No | Yes. The appointment is recorded on ASIC’s register |
| Debt limit | None, although the ATO’s self-serve options depend on the amount owed | Total liabilities of $1 million or less |
See ATO payment plans for businesses and ATO tax debt help for company directors.
Examples from our work
Three small business restructurings where ATO debt was the main liability. Each company’s outcome depended on its own circumstances.
- Plumbing contractor with a $775,000 ATO debt: more than 60 employees; about $975,000 of debt reduced to about $256,000.
- Aquarium retailer with a $309,000 ATO debt: about $336,000 of debt reduced to $76,200.
- Restaurant with 29 employees: about $795,000 of debt, including $715,000 owed to the ATO, reduced to about $179,000.
Common questions
Can small business restructuring deal with ATO debt?
Yes. Tax debts owed when the restructuring begins, including GST, PAYG withholding, income tax and interest, are dealt with in the plan alongside other unsecured debts. The ATO votes on the plan like other creditors.
Do I have to pay my ATO debt before entering SBR?
No. The tax debt can be dealt with in the plan. The company must, however, lodge its outstanding returns and activity statements and pay employee entitlements that are due, including super, before the plan goes to creditors.
Will the ATO accept my SBR plan?
The ATO assesses each plan on its merits. It generally supports plans that give creditors more, within a reasonable time, than a winding up, and may not support plans where loan accounts are unpaid, compliance history is poor or the plan gives an unfair advantage.
Can I appeal if the ATO rejects my SBR plan?
No. The ATO says a decision not to support a plan can’t be reviewed. It isn’t obliged to give reasons, although it normally gives general reasons.
Does SBR stop a director penalty notice?
Only a non-lockdown director penalty, and only if the practitioner is appointed within 21 days of the notice. Lockdown penalties and penalties not remitted in time remain the director’s personal liability, although plan payments may reduce them.
Can the ATO wind up my company during SBR?
While the restructuring is under way, the ATO can’t begin or continue recovery action without the practitioner’s consent or the court’s permission, and the court must adjourn a winding-up hearing if continuing the restructuring is in the company’s interests.
Sources: Corporations Act 2001 (Cth) Part 5.3B and s 596AA; Corporations Regulations 2001 (Cth) reg 5.3B.24; ATO, Small business restructuring; ASIC, Small business restructuring and the restructuring plan. This page is general information, not advice about your circumstances. Last reviewed: 16 October 2026.
Written by John Chand, Principal and Registered Liquidator. John has more than 17 years’ insolvency experience. Meet the team.
