Having a tax debt is stressful and quite often we see people put the matter in the too hard basket until the ATO eventually catches up with them. But did you know that if you can’t pay your tax debt upfront you can enter into an agreement with the ATO to pay off your debt over time in instalments. This is known as an ATO Payment Arrangement or Payment Plan.
Securing a Payment Arrangement isn’t a Sure Thing
Whether a Payment Arrangement is successful will depend on a number of things including the amount of the debt, your income, your expenses, your assets, your loans and liabilities, your future BAS /PAYG obligations. You will also need a fairly good reason as to why you cannot pay the debt in full. The information you provide needs to be accurate to ensure you can meet the proposed payments. It is very important that once you agree to a schedule of tax payments that you honour your commitment. If you do not and the payment arrangement defaults, the ATO subsequently takes a much harder approach. They have the power to record this on your credit rating, which may affect future lending.
Additionally, the ATO will not put a payment plan in place unless you are able to commit to paying 10%-20% of the total debt within 7 days. So, before you call the ATO, be prepared to have the funds available in your account and ready to go.
Additional Payments are not Pre-payments
You are having a good month, your cashflow is under control and want to pay a little extra towards your tax debt. Keep in mind, if you intend to pay a double instalment on month, the ATO will not treat this as a pre-payment for the next month’s instalment. You will need to pay the minimum instalment each month even if you have previously made an extra payment.
Scheduling a direct debit a few days prior to the due date is often the best approach to take. Payment arrangements often default because although the payment is made ON the due date it hasn’t given sufficient time to clear in the ATOs system. A direct debit will ensure the money has reached the ATO account on time allowing you then to make extra payments as and when you wish without the risk of defaulting your arrangement.
Keeping up with your Future Obligations
Now that your Payment Arrangement is on track you will need to ensure that all other tax returns and activity statements are lodged and paid on time. A late payment or lodgement will result in a default on your payment arrangement. Be aware that if you are expecting a refund from the ATO that this is not considered a payment. You will still need to make your regular minimum payment by the due date. The MJJ Team has a lot of experience with handling these matters and can advise you on the best approach to take. Please feel free to contact us for advice, we are just a phone call away.