Tax Debt and the Australian Taxation Office

During COVID the ATO was remarkably supportive of businesses and individuals and a lot of the normal policies concerning tax debt were put on hold. Because of that and because of the huge financial disruption to pretty much every business and individual during COVID – many people and businesses owe the ATO money.

Quite a lot of money. The title of a recent article “The construction sector owes a staggering $7.22 billion to the ATO” which you can read HERE, says it all. And that’s just one industrial sector.

Like it or not, if Australia wants roads, police and nuclear submarines then it needs money and that money comes from the taxation system.

If you owe income tax debt, business activity statement debt, super guarentee debt or any other kind of debt to the ATO they will get it back from you. So don’t bury your head in the sand and ignore your obligations. Or hope that things will improve and you will deal with it later.

Not many people realise just how powerful the ATO is. They can garnish your wages or bank account. In other words, order your employer to pay them or simply take money out of your bank account. In the 21st century the ATO also know an enormous amount about you and your business. So trying to be dodgy is just not going to work.

But don’t panic. The ATO really isn’t interested in persecuting anyone. They will work with you and your tax agent to hammer out a way to pay off the debt in a way that will suit your circumstances.

The first thing you should do is consult with your accountant and get a clear idea of what debts you have right now. What debts you can expect in the future and what capacity you have to meet these obligations and over what time period.

For an overview on the ATO website of payment plans – click HERE.

Payment plans

Individuals can set up payment plans via the ATO portal in MyGov. Click HERE.

Businesses can do so via the ATO’s Online Services for Business portal. Click HERE.

There is an automated phone number you can also use: 13 72 26. But it can be quite cranky to use.

You can also just ring the ATO on 13 11 42 and talk to some one. But generally, and especially at tax time – expect long (I mean LONG) delays.

Online plans have to be under $100 000 and can’t be longer than 24 months. The ATO also expects an upfront payment of at least 5% but in some cases more.

In the online portals the numbers in the form you use to set up a payment plan are prefilled but you can over ride them in the drop downs or put in your own numbers (but again, the plan can’t be longer than 24 months).

Sometimes, you will get an error message saying that you or your business is not eligible for an online plan. This usually means that something in the ATO computers – such as previous defaults, means the ATO thinks you are a high risk.

In that case or if you are outside the parameters above, you will need to actually talk to someone at the ATO.

It might be a good idea to get your tax agent to do it for you. Tax agents know your circumstances and cash flow. They also now how the ATO works and are very good at negotiating a payment plan for you.

In that case the ATO usually require capacity to pay information. In other words, what money is coming in and what money is going out. What’s in the bank, creditors and debtors and so on.

Capacity to pay is also needed if you require a non standard plan. In other words, a plan longer than 24 months. It is possible to get one out to 36 months (but read below about the General Interest Charge. The longer the plan – the more you pay).

The ATO also have a hardship team (more for individuals than businesses) that can do plans even longer but they have fairly strict requirements and you have to provide evidence of financial hardship. You can read more HERE.

Terms and Conditions

THIS IS VERY IMPORTANT! You have to meet the payments on your payment plan in full and on time. But any debt that comes in AFTER the payment plan is set up is not part of your payment plan. It doesn’t get added. It is separate and if that extra debt is not paid on time you will DEFAULT on the payment plan. This default is recorded on your account.

If you do need to add extra debt to your existing plan you have to cancel the plan you are on and set up a new one for the total combined debt.

Its the same with lodgements. When you are on a payment plan you can not be late lodging your Business Activity Statements or income tax for the year. If you do – you will default your payment plan.

Things to be aware of

The main one is the General Interest Charge (GIC). If you owe the ATO a debt – then the ATO will charge interest on that debt until it is paid in full. It varies but at the moment is an eye watering 8% per annum.

You can see the current general interest charge (GIC) rates HERE.

Consult with your accountant. In some circumstances it might be cheaper to arrange for a loan from the bank and simply use that to pay out in full.

But one thing you should also know is that it is possible to apply for remission of GIC. Generally you do that at the end of the plan. But you need to have a good payment history and not be late with other ATO debts and on time with all lodgements. You also need to supply a good reason as to why you fell into debt and what extenuating circumstances there were.

You can read about this HERE.

Handy tips and resources

Payment plan estimator. This lets you punch in the numbers so you can see how long it would take to pay off your debt and what GIC would come to for that plan. Click HERE.

Communicate with the ATO. If you need time to set up a plan – tell them that. If you have particular circumstances facing you – let them know. Don’t ignore letters they send you. When you are on a payment plan and you think you may not be able to make a payment – call them on 13 11 42. The ATO is willing to change dates, alter amounts or even skip a payment.

Call us on 1300 268 800