Published on 24 Aug, 2023

Discover How an ATO Payment Plan Can Help You

Written by:
Thomas S Phabmixay
General Manager

Page Contents

An important part of managing your small business is ensuring you are up to date with paying external entities, commonly referred to as ‘creditors.’ Creditors can be suppliers, personnel, fixed overhead expenses like rent or equipment outlays, and additional working capital requirements.

The Australian Taxation Office is an important creditor that is frequently overlooked. And among many pressing financial obligations, it’s tempting to overlook tax-related debts; however, addressing them promptly can provide a wider array of options. This is where the ATO’s Payment Plan steps in.

What is an ATO Payment Plan?

An ATO payment plan is a structured agreement between your business and the Australian Taxation Office (ATO). A payment plan enables your business to gradually repay its tax debt, which can be especially helpful when a big one-time payment isn’t feasible due to working capital needs or cashflow constraints.

Similar to other payment arrangements, the ATO payment plan sets a period during which you’ll make repayments. It’s important to note there will likely be interest applied to the amount you owe as well. Payment Plans can help you with managing your tax obligations.

How do I know if I need a Payment Plan?

If your business is facing tight cash flow pressures and you find you can’t cover your tax responsibilities in full by the deadline, a payment plan could be beneficial. Payment plans are valuable tools for small businesses as they can help you handle your payment commitments, and they offer an effective approach to accessing necessary finances.

Eligibility requirements for a Payment Plan

To be eligible for the payment plan, the Australian Taxation Office (ATO) might ask you to prove that your business can manage the debt repayment. The ATO could request access to your business’s profit and loss report or other financial records to assess this.

Here are some aspects they might consider:

Gross Margins: Your business’s gross profits compared to costs.
Cashflow: The movement of money in and out of your business.
Assets and Liabilities: What your business owns and owes.
Existing Debt Arrangements: Any ongoing debt agreements you have.
Funding Availability: Your access to additional financial resources.

Furthermore, it’s vital that all your small business’s tax returns are current and up-to-date. Alongside this, you’ll need to submit financial records for the ongoing financial year, even if your tax debt is linked to a different financial year. This thorough financial overview helps ensure the feasibility of your payment plan arrangement.

What are the interest rates of a Payment Plan?

The General Interest Charge Rate is the interest cost associated with the outstanding debt, and it can change every quarter. Presently, the interest rate is around 7.0%.

Flexibility in ATO Payment Plans: What Can Be Adjusted?

When it comes to ATO Payment Plans, there’s more room for negotiation than you might think. The factors that can be adjusted include: the size of your business, your history of lodging and payments, and the extent of your tax debt.

Description of negotiable factors in ATO Payment Plans. Payment plan variables include business size, lodgement/payment history, and tax debt size. Example: Small businesses (<$2M turnover) may get interest-free 12-month plans for <$50,000 debt if not overdue >1 year. Interest-free plans for eligible taxpayers' activity statement debt

In essence, taxpayers meeting the criteria can access interest-free payment plans specifically for activity statement debts.

Interest Deductibility and Considerations for ATO Payment Plans

Any interest you pay as part of the ATO Payment Plan can be deducted from your taxes. Yet, it’s worth noting that the interest rate provided by the ATO might be higher than what you could secure from other sources. Therefore, it’s wise to engage with your accountant and thoroughly explore your alternatives. Moreover, the length of the repayment period can also differ based on your circumstances.

Payment Timeline from the ATO: What to Expect

The length of time the ATO grants you for repayment can differ, but often spans 12 months. In certain cases, the maximum duration for a payment plan extends to 24 months. The payment amount fluctuates based on the frequency of the repayment intervals. To calculate the precise payable amount for various payment durations, you can use the calculator offered by the Australian Taxation Office.

Furthermore, the ATO holds the ability to extend the terms of your payment plan under specific circumstances.

How to set up your Payment Plan

There are three ways to enter into a payment plan with the ATO:

MyGov Account

For sole traders or if your tax debt is below $100,000, you can apply online via your MyGov account. Ensure your MyGov account is linked to the Tax Portal if it isn’t already. Learn more about linking your MyGov account here.

Calling the ATO

If MyGov isn’t your preference, you can call the ATO’s automated phone service. Have your Tax File Number (TFN) and Australian Business Number (ABN) ready.

You will need to call the ATO if your tax debt surpasses $100,000. If it’s slightly above this threshold, consider a one-time upfront payment to qualify for the payment plan.

Through a Registered Tax Agent

Your accountant can also help by registering the payment plan via the Tax Agent Portal. If you don’t currently have a tax agent helping you, feel free to reach out to us for assistance.

Remember, the ATO is committed to helping you repay the debt, and the payment plan is designed with your benefit in mind. Open communication and proactive steps will go a long way in this process.

Instructions for Setting Up a Payment Plan with the Australian Tax Office (ATO). Explains three methods: 1. Online application through MyGov account for sole traders or debts under $100,000. 2. Phone call to ATO for those with TFN and ABN, or debts over $100,000. 3. Use a Tax Agent to register the plan via the Tax Agent Portal.

Does a Payment Plan affect my credit rating?

Entering into a payment plan with the ATO does not directly affect your credit rating. However, if you default on the payment plan and the ATO takes further action, such as obtaining a court judgment against you, this could potentially affect your credit rating. It’s important to keep up with your agreed payments to avoid any potential issues.

Already Have a Payment Plan? Here’s What You Need to Know

You can’t have more than one payment plan at once because the rule for payment plans is that you pay each upcoming amount on time. Another reason is that payment plans are connected to certain accounts like Income Tax 551, not to the assessment itself, such as activity statements and tax income.

Why Staying on Top of Payments Matters

Keeping up with your tax payments is highly important. If you’re having trouble keeping up with your tax obligations it could suggest financial difficulties for your business. This, in turn, might make it tougher to secure loans or extend credit, especially if you have a substantial tax debt.

Unlike other creditors, the ATO has direct access to your business’s income tax account. They can use any tax refund you’re owed to settle your debt without asking for your permission. With a payment plan, you can regain control and can, within certain limits, determine how you’ll pay back the tax debt.

The key is to find a suitable payment plan that aligns with your financial capability while still addressing your business’s cash flow requirements.

Consequences of Defaulting on Your Payment Plan

When you commit to an ATO payment plan, it’s vital to stay on track with your installment payments. Falling behind triggers an automatic default on your plan. This negatively affects your payment history and could complicate future negotiations for similar plans.

Additionally, failing to submit upcoming activity statements and tax returns on time, and not paying them by the due date, will also lead to a default on your existing payment plan. This information can be accessed through the online services for businesses portal.

In summary, challenges with settling tax debts can arise for small business owners. However, ignoring the debt can result in serious repercussions for both you and your business. The ATO might take legal actions, such as involving external collection agencies or issuing garnishee or Director Penalty Notices (DPN). In extreme cases, the ATO could even issue a bankruptcy notice and begin winding up your business.

Taking control of your business’s tax debt is crucial, and the ATO Payment Plan offers a valuable pathway to achieve this.

Is Tax Debt Relief Possible?

Yes, it is possible to be released from your tax debt, but specific conditions apply. To qualify, you must demonstrate that repaying the debt would lead to significant hardship for you.

Meeting the ATO’s criteria for severe hardship necessitates showing that you’d be unable to provide basic necessities like food and shelter for your family. It’s important to note that selling your home might not automatically be considered an inability to provide accommodation in this context.

Next Step is to Contact TMS Financials

TMS Financial provides you with a team of experienced professionals that help you achieve your financial goals through smart tax structures and strategic financial structuring. We’re a one-stop shop for all financial needs and pride ourselves on building strong partnerships with our clients.

Book a free financial health review to see the difference we can make in your financial future.

Book a free accountant consultation with TMS CPA Accountants your specialists in Sydney Australia.

Disclaimer

This outline is for general information only and not as legal, tax or accounting advice. It may not be accurate, complete or current. It is not official and not from a government institution. Always consult a qualified professional for specific advice tailored to your unique circumstances.

Struggling with Tax Debt?

Explore the ATO Payment Plan with TMS Financials

Schedule Now

Division 7A compliance: Essential updates for business owners in 2025

Contact Us

Tax Insights & Business Advice

Receive only the guidance that matters. Subscribe now for personalised tips and expert advice, directly suited for you and your business.