Author
Grahame WardDirector & ASIC Registered Liquidator
Meeting your tax obligations is an essential part of running a business, but what happens when you can’t pay your tax bill? In between being unable to pay and the ATO initiating tax collection action, there are steps you can take to avoid unwanted outcomes.
One of these is entering into an ATO payment plan for your business.
What is an ATO payment plan?
An ATO payment plan (or ATO payment arrangement) is an agreement between you and the Australian Tax Office that lets you pay off your tax debt over an agreed period of time through instalments instead of in one lump sum.
The ATO will agree not to pursue tax collection activities as long as you continue to fulfil your obligations under the agreement.
Here’s what you need to know about ATO payment plans:
- A general interest charge applies to ATO payment plans, but note the interest charge is tax deductible.
- If you’re a small business with $50,000 or less owing in tax, you might be able to apply for an interest-free payment arrangement.
- If you end up with tax credits or refunds at a later date, it will be used to reduce your debt but you’ll still need to meet your required instalment payments.
- You can make additional voluntary repayments or pay off the entire outstanding amount any time you choose.
Why your business might need an ATO payment plan
Businesses as well as individuals could have problems paying their tax bill from time to time. It’s for this reason the ATO offers the payment arrangement option. By paying in instalments (usually over no more than 24 months), your business could find it easier to pay off the tax that’s due.
Key considerations
- Always lodge on time: even if you can’t pay the full amount by the due date, since penalties can apply if you don’t lodge as required.
- Communicate early: Rather than ignoring tax debt notifications, let the Tax Office know if you’re having trouble paying your tax as it falls due.
- Request penalty remission: Keep in mind in certain cases you might be able to request for a remission of late lodgement penalties and interest charges. For example, a family illness, the death of a loved one, or a marriage breakdown could make you eligible for a remission.
- Stick to the agreed plan: ATO payment plans typically last up to 24 months, so ensure your business can meet the commitments.
How to avoid a defaulted payment plan
If you miss an instalment, the arrangement will automatically default and the ATO could vary the payment plan or end it.If they end it, you need to pay the full outstanding amount immediately. This could involve the ATO:
- Issuing a garnishee notice to your bank
- Serving papers to wind up your company
- Making you personally bankrupt.
Also, keep in mind a default goes on your record and future dealings with the ATO will likely be more difficult.
Tips to avoid payment default
- Pay every instalment on time to avoid late payments. Pay in advance of the actual due date so your payment has time to clear into the ATO’s system.
- As a business, you could have more than one account with the ATO, so ensure you’re paying your instalments into the right account to avoid default.
- You need to continue keeping up with future obligations like lodging returns when they’re due and paying new tax as it falls due.
- Remember that directors are automatically personally liable for company PAYG and superannuation debts if these returns aren’t lodged with the ATO within three months of the lodgements falling due.
Finding the right ATO payment arrangement for your business
- Use the ATO’s calculator tool: You can use the ATO’s payment plan estimator to work out a payment plan scenario that suits your business. The estimator lets you work out how much general interest charge you’ll pay, what your instalments will be, and how long it will take you to pay it off.
- Get in touch to set up your plan: You can then use the estimator’s figures to set up a payment plan, whether it’s by calling the ATO, using the automated phone service, or through the ATO online portal in myGov. The online or automated phone options are usually only for tax debts $100,000 or less.
- Explore options & provide evidence: If you need to negotiate the payment plan with the ATO, you might need to show your business is viable and able to pay its debts. The ATO might ask for financial records like profit and loss balance sheet information. In some cases, the ATO could consider a secured payment plan, which could involve a registered mortgage over property or an unconditional bank guarantee.
- Consider tax obligations: As you work out your payment plan scenario, take future tax obligations into consideration. Set up your payments so you can fulfil these other obligations as they fall due as well.
- Set up payments: When it comes time to pay, you have a number of ways you can make your payments, whether it’s a funds transfer, credit or debit card, BPAY, or some other option.
A payment arrangement is a binding agreement and you’ll want to avoid defaulting on the agreed terms. When negotiating the arrangement, make sure your business can fulfil future tax debt as well as other outgoings. By keeping lodgements up to date and paying payment arrangement instalments by the due date, you could find the ATO would be more likely to agree to future arrangements without imposing stricter conditions.
ATO payment plans: Key takeaways
A tax debt doesn’t have to cripple your business. With an ATO payment plan, you could manage repayments, avoid legal action, and keep your business running smoothly. However, to maintain your agreement, it’s crucial to stick to deadlines, keep up with future tax obligations, and communicate with the ATO if circumstances change.
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