Sometimes circumstances can make it hard to pay the Australian Tax Office (ATO) in full on time.
With this in mind, the ATO allow payment arrangements on certain occasions.
It’s important to know all the terms of these arrangements, just like you would with bank finance.
The ATO charges quite a high interest rate (currently 8.70%), which accumulates on a daily basis. However, small businesses may be eligible for interest-free payment plans in certain circumstances.
Depending on the debt amount, the ATO generally requires payment of the outstanding debt within 12 months. When determining the repayment, it’s important to make sure it’s an affordable amount to repay. It’s a good idea to also have the payment automatically direct debit out of the bank account to ensure its paid-on time, as late payment will default the arrangement.
An important (and often forgotten) part of the payment arrangement requirement is the obligation to pay future tax debts along with the payment arrangement repayments. For example, if the arrangement is for BAS debt, the taxpayer must also be able to pay the future BAS’ lodged in full on time. If they are unable to, this will default the current payment plan.
Defaulting on Payment Plans
If the payment is not made on time or future tax obligations are not paid, this is called a default (much like defaulting on a loan repayment). If the taxpayer defaults on a payment plan the ATO may impose stricter requirements before agreeing to a new plan. This will also affect the tax history with the ATO. The ATO may require an upfront lump sum payment as a show of good faith, before putting the balance on a payment arrangement.
The ATO also has the ability to disclose tax debt information to Credit Reporting Agencies. A default on a payment arrangement may therefore affect the taxpayers credit rating and future finance ability.
As tax professionals, if you’re having trouble paying your tax obligations, please contact us immediately. It’s typically easier to negotiate with the ATO earlier, rather than waiting for them to call you about the debt.