Introduction

The ATO has had a long-standing practice of not pursuing tax debts that are in dispute unless they’re the highest risk cases. In our experience, notwithstanding published statements and until recently, the ATO rarely pursued disputed tax debts. That all changed on 15 October 2026. The ATO now expects that large businesses, and privately owned and wealthy clients, will pay disputed tax debts in full or alternatively, enter a 50:50 arrangement. The change in attitude is substantial, but also consistent with the more assertive compliance posture adopted by the ATO in the last 2 to 3 years.

Pay now, fight later

Under the tax law, tax debts are due and payable to the ATO even if you’ve lodged an objection, review or appeal to the tax debt itself. The ATO can still take recovery action to collect such debt and the dispute itself doesn’t suspend, or otherwise put on hold, the obligation to pay the debt while the dispute is being resolved.

Interest also continues to accrue on unpaid tax debts at a hefty 11.51% per annum, being for the October 2026 to December 2026 quarter. A tax deduction isn’t available either for ATO interest incurred after 1 July 2025, meaning that effective rates of interest are closer to, and in some cases north of, 20% per annum. You can read more about the tax laws denying interest deductions in our previous Tax Insight available here.

This is particularly significant in more recent times with extensive delays in the dispute process. You should expect wait times of 12 months or more at the tax objection stage for your dispute to be heard, with larger and more complex cases taking many years to resolve.

The ATO’s 15 October 2026 announcement signals that large businesses, and privately owned and wealthy clients, can expect direct ATO contact to get disputed tax debts under control. Evidently, this will put clients under cash-flow pressure.

What’s the policy and what do I need to do?

The ATO expects that large businesses, and privately owned and wealthy clients, will pay a disputed tax debt in full or alternatively enter a 50:50 arrangement.

According to the ATO, ‘Large business, and privately owned and wealthy’ clients, include taxpayers that are:

1. members of a group with a turnover of greater than $250 million,
2. members of a private group with over $250 million in net assets, or
3. significant global entities, meaning they have a global turnover exceeding AUD 1 billion.

Under a 50:50 arrangement you must:

1. pay all undisputed tax debt,
2.  pay a minimum 50% of the disputed principal tax debt (that is, the total tax debt owing to the ATO excluding any penalties and accumulated interest),
3. cooperate fully with information requests within 28 days or another agreed timeframe,
4. pay any subsequent undisputed tax debts, and
5. keep all lodgment obligations up to date.

There are also some taxes to which 50:50 arrangements don’t apply, such as superannuation guarantee charge and diverted profits tax.

In return, the ATO will agree to defer debt recovery action on the remaining balance of the tax debt until 14 days after the dispute is resolved. Further, the ATO will remit 50% (or 75% in test cases) of the interest which continues to accrue on the remaining balance. You should expect to receive confirmation in writing of the decision to agree to the 50:50 arrangement.

In the highest risk of cases, such as asset dissipation or absconding, the ATO may still take recovery action using the various methods it has available. Further, a 50:50 arrangement can also be refused or revoked, including where there are concerns that a dispute is frivolous or vexatious.

Finally, if you’re not a large business, or a privately owned and wealthy client, then in cases where your tax affairs are straightforward and the risk to the revenue is low, the ATO will usually not take recovery action in respect of a disputed debt while an objection, review or appeal is on foot.

Where to from here?

Affected clients should expect to receive contact from the ATO between now and the end of financial year 2026 as the ATO starts to ramp up its activities.

We recommend that clients engage with the ATO early, preferably before or as soon as a disputed assessment is issued, to discuss payment options and the availability of a 50:50 arrangement. Options are also available to stop the ATO pursuing debt recovery action even if a 50:50 arrangement isn’t possible or cannot be agreed to.

Large businesses, and privately owned and wealthy clients, engage HWLE Lawyers to help with all aspects of the tax dispute process from early intervention strategies to resolve disputes quickly and cost effectively, through to review and appeals in the Tribunal and the courts. We can also help to resist debt recovery action in appropriate cases.

This article was written by Vincent Licciardi, Partner and Eric Lay, Associate.