Key Takeaways
- When you’re in tax debt, the ATO can allow you to set up a payment plan, enabling you to repay tax debt over time instead of paying everything upfront.
- To qualify for a payment plan, businesses must often be able to provide a minimum upfront payment, and the terms they select must be reasonable to the ATO.
- It’s also important for businesses to have a good standing with the ATO, with no more than 2 previous defaults on tax debts.
- Not everyone can be eligible for a payment plan, but there are other alternatives, potentially negotiating with the ATO, and paying with a tax debt loan.
- Tax debt loans offer an alternative to payment plans, providing immediate funds to clear ATO debt in part or in full.
- Loans can offer more flexible repayment terms and may help businesses avoid General Interest Charge and ATO penalties.
Having debt with the Australian Taxation Office (ATO) is no joke—it can escalate to the point where businesses have to close. Thankfully, the ATO offers payment plans to help businesses settle their debt over time. You can get an ATO payment plan in Melbourne, Sydney, Brisbane, or anywhere in Australia.
But what happens if you’re not eligible for a payment plan? Let’s explore ATO payment plan eligibility, payment terms, and alternatives like tax debt loans for businesses that may not qualify.
What Is an ATO Payment Plan?
If you’re in tax debt, the ATO may allow you to set up a payment plan either online, through the self-help phone line, or a direct call. A payment plan allows individuals and businesses to repay their tax debts over a period instead of paying the full amount upfront.
Paying your tax debt in full can be a big blow to your finances, so spreading the amount in instalments gives you time to manage cash flow effectively while still paying the ATO.
You will be given the choice to pay weekly, fortnightly, monthly or through a lump sum. The plan can cover various types of taxes, including Goods and Services Tax (GST), income tax, and Pay As You Go (PAYG) instalments.
Here’s what you need to know about ATO payment plans:
1. How Long Does the ATO Give You to Pay Tax Debt?
The ATO offers flexible repayment terms depending on the business’s financial situation. In most cases, the ATO payment plan maximum duration is 24 months. If you need a longer period to repay your tax debt, you need to call the ATO directly to discuss your situation.
2. Does the ATO Payment Plan Charge Interest?
Yes, the ATO applies a General Interest Charge (GIC), which accrues daily. While the ATO aims to provide relief through payment plans, businesses should be aware that these interest charges can accumulate over time, increasing the overall amount owed. The current GIC annual rate for this quarter is 11.38%, which can translate to thousands of dollars for a 2-year payment plan term.
3. Can You Pay Off a Payment Plan Early?
Yes, businesses have the flexibility to pay off an ATO payment plan early without any penalties. Early repayment not only clears the debt faster but also helps reduce the amount of GIC accrued over time, saving businesses money in the long run.
ATO Payment Plan Requirements
ATO payment plans are available to taxpayers with outstanding tax debt. However, the ATO considers many factors, which means not everyone can be qualified to set up a payment plan.
Who Can Apply:
- Individuals
- Sole Traders
- Businesses
- Registered tax or BAS agents
Factors Affecting ATO Payment Plan Eligibility:
Upfront Payment
To be eligible for a payment plan, you must be able to make an upfront payment followed by instalments. The minimum amount for the upfront payment is 5%, which can be difficult to manage if your tax debt is large. For instance, if you have a debt of $150,000 plus GIC, you need to pay at least $9000 upfront, within 7-14 days. If this is not possible, you may not be eligible for a payment plan.
Maximum Duration
The ATO allows you up to 2 years to pay off your debt through a payment plan. If your debt is significant but your cash flow is tight, the amount you can pay (either weekly, fortnightly, or monthly) may not be enough to ensure the debt is paid off in 2 years. (You can use ATO’s online estimator to check) If you exceed the maximum duration, you will have to directly contact the ATO to try and negotiate.
Maximum Debt Amount
If your debt is under $200,000, you can set up a payment plan online or through the self-help phone line. If your debt exceeds this amount, you will have to directly call the ATO to arrange payment.
Good Compliance History
The ATO considers taxpayers’ history when approving payment plans. A history of non-compliance or more than 2 previous defaults on payment plans may affect your eligibility.
What to Do If You Are Not Eligible for an ATO Payment Plan
If your business is not eligible for an ATO payment plan, there are other ways to settle your tax obligations.
- Negotiating With The ATO: You can communicate with the ATO about your financial troubles, and you may reach a compromise to either lower the amount you owe or waive the remaining balance in an undisputed tax debt.
- Paying Using Superannuation: If you are in severe financial distress, you can access your super early and use the funds to pay your tax debts.
- Tax Debt Loans: These loans can provide immediate funds to repay the ATO, allowing you to avoid legal action and clear your tax debts.
Tax Debt Loans: An Alternative Solution
A tax debt loan is a type of financing used to pay off obligations to the ATO. These loans offer quick access to funds, which can be used to pay off tax debts in full, often at more favourable terms than an ATO payment plan.
Benefits of Tax Debt Loans
- Immediate Payment to the ATO: Businesses can avoid penalties or legal actions by paying off their debt immediately.
- No GIC Accrual: Since the ATO debt is cleared with the loan, businesses are no longer subject to the General Interest Charge.
- Flexible Repayment Options: Many lenders offer repayment terms tailored to the business’s financial situation.
- Preserve Business Reputation: Settling tax debt promptly helps maintain a good relationship with the ATO and avoids public records of legal action.
Tax Debt Loans vs. ATO Payment Plans
| Feature | ATO Payment Plan | Tax Debt Loan |
|---|---|---|
| Approval Criteria | You may not qualify for one based on your payment history or the terms you require | Depending on the lender, can be available to those with bad credit |
| Interest | General Interest Charge (GIC) accrues daily on unpaid amounts. GIC will not be tax deductible after 1 July 2025 | GIC will not add up since you’re using the loan to pay upfront. You will instead pay interest on the loan, which is usually tax deductible. |
| Upfront Payment | At least 5% of the tax debt owed required | Most lenders will not require any upfront payment for a tax debt loan. |
| Term Length | 18 Months to 2 years typical maximum term | Loan duration can be tailored to your needs based on the lender’s agreement and can be 5 years or more in some circumstances |
When to Consider a Tax Debt Loan
Tax debt loans are suitable for businesses facing one or more of the following situations:
- If you have been rejected by the ATO for a payment plan
- If you have cash flow constraints that prevent you from making upfront payments
- If you need a longer payment term but don’t want to pay large amounts in GIC
- If you have a preference for spreading out repayments with a lender rather than through the ATO
Types of Tax Debt Loans
Here are some types of tax debt loans you can apply for to help you clear your obligations with the ATO:
- Unsecured and Secured Loans: Get loans with or without security to pay off tax debt, depending on your business’s asset availability.
- Debt Consolidation Loans: Consolidate multiple debts into a single loan to simplify payments and pay off tax obligations.
- Overdraft Facilities: Use an overdraft facility to access short-term credit to manage cash flow and settle ATO debts.
- Equipment Finance: Leverage the equity in your business equipment to get financing to pay off tax debts.
- Property Equity Loans: Tap into property equity to access funds for immediate tax debt repayment.
- Interest-Only Loans: Ease cash flow pressure with interest-only loans, paying only interest upfront while focusing on tax debt resolution.
To Wrap it Up
If you’re in debt with the ATO, it’s important to understand what payment plans are and how they work. More importantly, it’s crucial to understand ATO payment plan eligibility. If your business meets the ATO payment plan requirements, this arrangement can offer manageable repayment terms. However, not all businesses qualify, and even those that do may find the GIC burdensome.
If eligibility is an issue, tax debt loans give you a viable alternative, allowing you to settle your debts with the ATO and avoid accruing GIC. Whether you choose a payment plan or opt for a loan, the key is to act quickly to protect your business.
Disclaimer: The information provided in this article is intended for general guidance only, is subject to change and does not take into account your personal circumstances. While every effort has been made to ensure the accuracy of the content, it should not be relied upon as a substitute for professional advice. Always consult with a qualified expert for your specific situation.
Clear Your ATO Debt With A Tax Debt Loan
If you’ve been rejected for a payment plan or if you simply want to avoid GIC and remain in good standing with the ATO, tax debt loans may be the right step for you. We’re experts in tax debt loans—we’ll help you get the best rates and terms aligned with your needs.
