How Much Tax Debt Can Be Included in a Small Business Restructure?
If your business is struggling with ATO debt, a Small Business Restructure (SBR) might offer a lifeline — potentially reducing your overall debt burden significantly. But how much tax debt can actually be included in an SBR?
Let’s break it down.
The Short Answer
There is no specific cap on the amount of tax debt that can be included in an SBR. What matters is that the business’s total liabilities (including ATO debt) must not exceed $1 million.
What Counts Toward the $1 Million Limit?
Under section 453B of the Corporations Act 2001, to be eligible for SBR, the total liabilities of the company — not just tax debt — must not exceed $1 million. This includes:
ATO debts (e.g. PAYG, GST, income tax)
Employee entitlements (e.g. superannuation)
Trade creditors
Bank loans or other financing
Related-party loans (e.g. director loans)
So if your business owes $800,000 to the ATO and $150,000 to suppliers, you would not be eligible, as your liabilities exceed $1 million.
Important: The ATO is often the largest creditor in SBR cases, and is generally open to negotiations under a well-prepared plan.
Types of Tax Debt That Can Be Included
All types of ATO-related debt can be included in a small business restructuring plan, such as:
PAYG Withholding
GST liabilities
Income Tax debt
Superannuation Guarantee Charge (SGC)
General Interest Charges (GIC)
Penalties
Even debt under Director Penalty Notices (DPNs) may be addressed, as long as the restructure occurs before personal liability is locked in.
How Much of the Tax Debt Can Be Compromised?
There is no fixed percentage, but reductions of 30% to 70% are common — depending on:
The business’s current financials
How much the ATO believes it can recover under the plan
The strength of the proposal and payment schedule
Each case is assessed by the Restructuring Practitioner (RP) and creditors. The ATO is usually the major creditor, and its vote can determine the plan’s success.
Example
Let’s say a business has:
ATO debt: $120,000
Trade creditors: $40,000
Employee entitlements: $25,000
Total liabilities: $185,000
This company is well under the $1 million cap and can propose a restructuring plan that includes the full $120,000 in ATO debt.
If approved, the ATO may agree to accept, say, $60,000 over 24 months, waiving the remaining $60,000 — depending on the viability of the business and the terms of the offer.
What If You’re Over $1 Million?
If your business’s liabilities exceed $1 million, you won’t qualify for SBR. Instead, you might need to consider:
Voluntary Administration
Informal ATO payment arrangements
Safe Harbour provisions
Liquidation (if unviable)
Final Thoughts
The SBR process allows all tax debts to be included — as long as your total company liabilities are under $1 million. This makes it a powerful option for businesses that are still viable but struggling with overwhelming tax obligations.
Make sure you work with a licensed Restructuring Practitioner, and ensure your financial records and lodgements are up to date before entering the process.
References
Corporations Act 2001 (Cth) – Part 5.3B
ATO – Help for businesses with tax debt
Treasury – Insolvency reforms to support small business
