Taxpayers who can't pay their tax by the due date should consider whether to request a payment arrangement with the ATO. An arrangement to pay in instalments does not vary the time when the amount is due and payable, and therefore does not affect any liability to pay the general interest charge, or any other relevant penalty, for late payment.
It's best practice to address tax debt problems as early as possible. If a payment arrangement is an appropriate approach for you, you need to understand the process involved.
Depending on eligibility, the ATO has three ways to help set up a payment plan:
Online payment plan services for debts under $100,000: If you're an individual or a sole trader with an income tax or an activity statement debt of less than $100,000, you may be eligible to use the ATO online services for individuals to set up a payment plan.
Automated payment plan phone service for debts under $25,000: If your debt is less than $25,000, you can use the ATO automated phone service to arrange a late payment or make a request to pay by instalments.
Contact the ATO for more complex situations: If your tax debt is $25,000 or more, you can call the ATO on 13 11 42 to discuss your circumstances, or your tax adviser can call on your behalf. The ATO may need to know more about your financial situation and your circumstances so it can set up a payment plan. Among other things, the ATO may require that you show your business is viable.
Registered agents can also request a payment plan on their clients' behalf.
If you run a small business with an activity statement debt, you may be able to pay it off interest-free over 12 months. You will need to have a good history of tax lodgments and payments.
The Commissioner is not legally bound to allow payment by instalments, and will consider each case on its own merits. If the Commissioner refuses your request to pay by instalments, that decision should be reviewable under the Administrative Decisions (Judicial Review) Act 1977.
The ATO's Practice Statement PS LA 2011/14 contains guidelines on when the Commissioner may agree to payment of a tax-related liability by instalments. The Commissioner will not accept payment by instalments if the ATO's prospects of recovery in the longer term would be diminished or the revenue would be disadvantaged.
Taxpayers paying by instalments are expected to finalise their debts in the shortest possible timeframe. If the period extends beyond one or more financial years, the taxpayer may be required to provide security or a surety. Also, payment arrangements will be reviewed regularly to take into account any changes in the taxpayer's financial situation.
The Commissioner will consider a range of matters when deciding whether to allow you to pay by instalments, including:
the circumstances that led to your inability to pay;
your current financial position, including other current payment obligations and actions you have taken to rearrange your finances or borrow to meet the debt;
the stage any legal recovery action has reached and the grounds you put forward to justify deferring legal action;
your solvency, and arrangements you have made with other creditors (arm's-length or otherwise) to pay your debts;
your compliance with other taxation obligations or commitments and the history of your dealings with the ATO;
whether alternative collection options may result in your debt being paid over a shorter period (eg the use of "garnishee" provisions); and
your willingness to enter into direct debit arrangements, where that facility exists.
Where a company has a tax debt, the Commissioner may not agree to payment by instalments if there are (or ought to be) reasonable grounds to suspect that the company is insolvent (in such a case, any money received under an instalment arrangement may be recoverable by the company's liquidator under Pt 5.7B of the Corporations Act 2001).