How to negotiate an ATO payment plan (small businesses)

Summary

  • An ATO payment plan is a tailored option for the repayment of an individual or business tax debt
  • It allows the debtor to pay off their tax debt and interest in a time frame and with a regularity that suits their financial situation
  • A payment plan is often appropriate in situations where the debtor has an unmanageable lump sum tax debt that they do not have the resources to pay off immediately
  • Payment plans are made and altered through by communicating with the ATO and obtaining their agreement

Estimated reading time: 7 minutes

What to do first

Dealing with a significant tax debt can be overwhelming, especially when you do not have the liquidity to pay it off when it is due. Individuals and businesses can follow these steps to find a mutually beneficial payment plan that is acceptable to the debtor and the ATO.

  1. Collect and read all ATO correspondence

Locate and collate all correspondence from the ATO in relation to your tax debt. Arrange it in chronological order to get a better idea of what is owed, and when it is (or was) due, so you have all the information you need to begin discussions with the ATO.

  1. Figure out how much is owed

Refer to the correspondence collected above, and check your running balance online to find out how much is owed. For businesses, log in to the Business Portal, and for individuals, log in to myGov. The amount mentioned in the latest correspondence should match the amount listed online; if there is a discrepancy, make sure to clarify this when you contact the ATO.

  1. Use the ATO’s payment plan estimator

The ATO has a payment plan estimator tool you can use to workshop a payment plan that will work for you. Input the amount you owe in tax debt (which you should now be aware of after completing the previous step) and choose a frequency that suits you. Make sure to complete this step before contacting the ATO so you are in a more knowledgeable position to negotiate and discuss your actual payment plan.

  1. Contact the ATO

You are now ready to speak with an agent of the ATO and begin negotiating a payment plan.

  1. If your issue is simple, or you are comfortable sorting out your payment plan without speaking to a representative, you can organise this via online and automated phone payment services which can help you set up a plan to pay in instalments. However, to organise the plan online, you will need a myGov account linked to the ATO, and the debt must be under $100,000. You will also need your ABN (business) or TFN (individual).
  2. If your matter is complex or you are concerned about anything to do with your tax debt or potential payment plan, you can contact the ATO during business hours on 13 11 42, or if there is an ATO officer named on your correspondence, you can call them directly.

How does it work?

Keep in mind the following regarding your payment plan:

  • You can pay weekly, fortnightly, monthly, or in lump sum payments
  • Credits and refunds from the ATO will reduce the debt but not replace instalments
  • General interest will accrue until the debt is paid (and the ATO has already agreed to remit)
  • You can make additional voluntary payments or pay the debt off at any time without penalty
  • Make sure you still lodge your activity statements and tax returns on time, even if you can’t pay by the due date to avoid a penalty for failing to lodge on time and show the ATO that you’re aware of your obligations and are doing your best to meet them (this is a condition)
  • Remember that by consenting to a payment plan, you are agreeing to pay the whole debt (without discount)
  • When you pay your final instalment of the payment plan, check your account balance (via the business portal or myGov) to confirm that the payment plan has been successfully discharged

If you default on a payment plan…

Defaulting on a payment plan can lead to penalties. If you are entering into a plan to give you breathing room, the breathing room will be limited.

If for whatever reason you cannot pay an instalment, contact the ATO immediately to see if the payment plan can be varied to account for your change in circumstances.

Penalties for defaulting on a payment plan may include:

What the ATO can offer you

  • The ATO may be able to offer interest-free payment arrangements for small businesses with an activity statement debt.
  • However, interest will not be waived in some cases, such as in those where there have been previous defaults.
  • Support and help can be sought from the ATO. It is important to communicate with them as much as possible. If you are doing the right thing and can show this, the ATO are supposed to do everything they can to help you where possible. However, keep in mind that the ATO will not be particularly ‘sympathetic’ – they are not particularly warm.
  • You will need to provide details on your financial situation; businesses may need to show that their business is viable in relation to their payment plan. Do not provide more detail than is necessary, and only provide information relevant to the matter at hand. If you embellish or exaggerate you may be committing fraud.

Special circumstances/exceptions

  • Secured payment plan: If you can’t reach an agreement with the ATO about paying your debt, they may consider accepting an offer of security where you make a request for deferring the time of payment of a debt, or where you are seeking to pay a debt by instalments.
    • The ATO’s preferred securities are: a registered mortgage over freehold property, and an unconditional bank guarantee from an Australian bank.
    • Please note – these are very high value securities. It would be crazy for you to put your house up as collateral for a company debt!
  • Disasters (natural) and serious hardship: for disasters, payments may be able to be delayed without penalty, and for hardship, the ATO may be able to release you from some or all of the debt. If paying your tax debt would cause you serious hardship, for example, if you wouldn’t be able to provide food and accommodation for you or your family, contact the ATO to discuss your circumstances.
    • However, even in such cases, the ATO will most likely only offer deferral, as opposed to remission from a tax debt. This can be particularly tough on farmers and other Australians working in volatile industries particularly susceptible to external forces such as market trends and climate change.
  • The ATO states on their website that they are committed to taxpayers’ wellbeing. They suggest that if you are feeling overwhelmed or struggling with mental health issues impacting your ability to budget and/or pay a debt, you should contact the ATO.
    • However, there have been recent accusations levelled against the ATO for their ‘draconian’ uses of their extensive powers: read the Four Corners report from 2018 here.

Key takeaways

  • A payment plan can provide a legal and manageable way to respond to an overwhelming tax debt
  • However, they must be taken literally: failing to comply with a payment plan can force stronger action from the ATO. Any breathing space will be short-lived if you don’t adhere to the plan!
  • While the ATO express their commitment to your wellbeing, their track record in dealing with the public should be considered. Communication and transparency are very important in coming to an arrangement that works, but do not give up more information than is necessary. If you are concerned by your contact with the ATO, contact a third party professional for advice.

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