Recently one of my clients rang me because her business activity debt was very high and she was panicking because she was unable to pay the debt by the due date. I calmly told her to make a payment arrangement with the ATO so she could pay the debt by instalments. My client told me she had never heard of payment arrangements and wasn’t even aware that this payment option existed. I was surprised by this because I thought it was common knowledge. I wondered how many other business owners out there were oblivious to their tax payment options and decided that the best way to educate them would be via a blog, so here goes!
For most business owners, tax debt is just a part of the landscape and can include income taxes, activity statement-related taxes and several others. Sometimes, despite best intentions, it can become quite difficult to pay tax debt on time, especially if cash flow is compromised in some way. The best thing to do in this situation is to call the ATO and tell them that you are having difficulty paying the debt. In most cases, the ATO will help you organise a payment arrangement that will allow you to pay off your debt in instalments. So how does this work and what is involved?
What is a payment arrangement?
A payment arrangement is a plan you make with the ATO to pay off your tax debt in instalments. The arrangement is usually conducted over an agreed time frame and always attracts a general interest charge. This means that you will pay more than the original tax debt and the longer you take to pay the debt, the more interest you will pay (something to think about!). Having said that, in some cases, the ATO will allow interest-free payment arrangements but this is only for activity statement debt – see here for more information.
How to make a payment arrangement
The first thing to do is use the ATO’s online calculator or work out your own payment plan. You can then use this proposed plan as a basis for making the payment arrangement with the ATO. If your debt is $25K or less and is related to income or activity statement taxes, you can ring the automated service which allows you to create your payment arrangement quickly and easily without having to talk to a customer service agent. The numbers to call are:
- For individuals 13 28 65
- For business owners 13 72 26
If you would prefer to discuss your circumstances with the ATO, then call 13 11 42.
If your debt is more than $25K, you can either call the ATO directly or if you have an Auskey and have access to the business portal, you can send a request via the secure mailbox. You can also ask your BAS or Tax agent to do this on your behalf as they can also send requests via their own ATO portals.
Information you’ll need to provide
When attempting to make the payment arrangement, the ATO may request certain information from you such as how the debt arose and why you can’t pay it. They may also ask you:
- how you plan to pay it
- what you can afford in instalments
- how often you can pay instalments
- when you can make your first payment
- what you’ve done to avoid these circumstances in the future
- who you bank with and the balance of your account
- whether you have an overdraft facility
- your average monthly income and expenses
- your major assets and liabilities
- whether you can sell or borrow against an asset to clear the debt
- what type of business you operate (where applicable)
- details of your current debtors and creditors (where applicable)
It is always best to pay your tax debt by the original due date where possible. If however, you cannot do this, then contact the ATO for assistance – don’t wait until you receive an ominous letter in the mailbox! The ATO will generally be very helpful in most cases by organising a payment arrangement to assist you with your cash flow issues. If you think that you need help when contacting the ATO always remember that your BAS or Tax agent can do this on your behalf. So don’t lose sleep over your tax debt – there is help available, you just need to speak up!