Peter Strong, executive director of the Council of Small Business Australia, told The Australian the ATO was "hunting" small business to recover debt and "more aggressively" contacting those people through letters and phone calls, asking when that debt would be repaid.

"They are asking those people basically to agree to that in writing, and having agreed to it . . . if a business fails to pay they will then call the whole debt in," he said, warning that such a move will tip many small businesses into bankruptcy.

"This is what always happens when there's deficits," Mr Strong said.

"If you go back over the decades you will find that the (tax office) always (gets) more aggressive when there is a deficit, so the pressure is on them to bring in money in that's missing."

Mr Strong welcomed the Coalition's promise yesterday to provide greater oversight of the ATO and its suggestion it might break the tax agency into two arms -- administration and policing -- if it did not improve its handling and resolution of formal tax disputes. He described the proposals announced by opposition Treasury spokesman Joe Hockey as a "step in the right direction"and said a break-up of the ATO would be better for small businesses, as it would be easier "to communicate with smaller organisations".

"So if we have a problem with administration, we could go to that organisation; if we have a problem with the compliance regulation, we can go to them," he said.

"So there is no muddying of the waters about which section is the regulator and which one is the administrator."

The ATO was among the few government agencies to receive a funding increase in last week's budget. It received about $143 million in funding across the next four years to set up a trust taskforce and improve compliance through third-party reporting and data matching.

In the past year alone, the Coalition says, the government has increased the size of the tax office by more than 500 staff, taking the total employment to more than 22,000 people.

Data from the ATO showed outstanding tax and superannuation debt from small businesses with an annual turnover of less than $2m was $10.17bn as at June 30 last year and $9.6bn as at December 31.

An ATO spokesman said "current wind-up and bankruptcy figures are consistent with previous years".

"The ATO engages external consultants to conduct regular independent reviews of its management of insolvency cases," he added.

Reviews of more than 1000 cases completed "to date found that in no case did the ATO's actions lead to premature bankruptcy or wind-up".

He said to ensure a business didn't get a competitive advantage by not paying its tax or superannuation debt, "we take firmer action when appropriate".

However, MDB Taxation and Business Advisors senior manager Ben Vojtisek said his firm was seeing "a lot more letters, a lot more penalties and a lot of bullying" from the ATO towards its clients. "It's harder to get payment arrangements through."

Vicki Stylianou, executive general manager of public affairs for the Institute of Public Accountants, said it seemed to her that from people she had spoken to and stories she had read, the ATO was "more prone to bankrupting people than previously".

Article duplicated from The Australian - KATHERINE JIMENEZ May 23, 2013