An ATO payment plan, in the context of tax obligations, is a structured arrangement that allows individuals, sole traders, businesses, and registered tax or BAS agents to manage their tax debts when they are unable to pay the full amount owed in one lump sum and within the specified deadline. This arrangement involves breaking down the outstanding tax debt into smaller, manageable payments made at regular intervals, such as weekly, fortnightly, or monthly. The primary objective of an ATO payment plan may be to help taxpayers clear their tax debts while minimizing the accrual of the General Interest Charge (GIC).
Key Points taxpayers may want to consider regarding ATO payment plans:
Payment Plan Eligibility: Payment plans maybe available to individuals, sole traders, businesses, and registered tax or BAS agents acting on behalf of clients who are unable to meet their tax obligations promptly.
Payment Plan Considerations: Before entering into an ATO payment plan, taxpayers should evaluate whether they can pay the entire tax debt immediately. If possible, paying in full and on time maybe the preferred option.
Managing Multiple Debts: Taxpayers with multiple overdue tax debts should consider the implications of their payment plans, as defaulting on an ATO payment plan may lead to the need to pay the entire tax debt in full or establish new payment plans to avoid debt recovery actions.
Tax Credits and Refunds: Any tax credits or refunds received by the taxpayer will be used to offset the outstanding tax debt but will not replace the required installment payment.
Accrual of GIC: The General Interest Charge (GIC) continues to accrue until the tax debt is fully paid.
Flexibility: Taxpayers may have the option to make additional voluntary payments or pay off the debt in its entirety at any time during the payment plan.
Obligations: Taxpayers are still responsible for submitting their activity statements and tax returns and ensuring that associated tax liabilities are paid on time.
Steps to may want to consider before setting up an ATO payment plan:
– Assess your ability to pay the tax debt immediately versus over time.
– Determine the amount you can pay immediately and when you can pay the full debt.
– Consider negotiating payment plans for all outstanding debts.
– Calculate how much you can afford to pay for each scheduled installment, including interest on any overdue amounts.
– Account for your future financial obligations.
– To aid in this decision-making process, taxpayers can visit the ATO website and use an online payment plan estimator to calculate an affordable payment plan. This tool helps determine the duration of the payment plan and the associated interest charges. Keep in mind that the longer it takes to pay off the debt, the higher the total interest costs will be.
Setting Up an ATO payment plan:
Taxpayers may be able to set up an ATO payment plan online without requiring assistance from tax authorities in certain situations. However, there may be circumstances where contacting the tax authorities is necessary, even if the online estimator suggests a suitable arrangement. In such cases, additional information about the taxpayer’s financial circumstances, reasons for the inability to pay immediately, income, expenses, and assets may be requested to tailor an appropriate and manageable payment plan. Business owners may be required to provide details of their business income, expenses, and other cashflow information to facilitate the process. The goal is to establish an ATO payment plan that aligns with the taxpayer’s financial capabilities and ensures gradual debt clearance.
On the 7th September 2023 the ATO recently stated that “For many businesses, the most effective payment plans will put them back to square before their next reporting cycle – ensuring they are back on track before new debts accumulate. This means for the majority, shorter repayment periods of 90 days to 12 months. Taxpayers contacting us can expect a conversation about making payment in full and if this is not possible, we will assess their capacity to pay so we can determine an appropriate and manageable payment plan that is finalised in the shortest possible time.” This means generally that payment plans maybe harder to get moving forward.
Find out more about about ATO debt recovery
Are you eligible for Small Business Restructuring?
If your business is under financial stress and suffering from tax debt, a Small Business Restructure may be a good solution.
