Key Takeaways
- The Australian Taxation Office can allow taxpayers to settle obligations through a payment plan, which, if agreed to might be paid in lump sum, weekly, fortnightly, or monthly.
- However, a payment plan is not always feasible for all business owners. Issues with payment plan terms and a history of defaulting can disqualify business owners.
- A great solution for tax debt when payment plans aren’t possible can be a tax debt loan, which are available from various non-bank lenders.
- Tax debt loans can offer more flexibility, longer terms, and possibly lower rates than payment plans from the ATO.
- Most importantly, tax debt loans immediately clear you of any obligations to the ATO, helping you maintain good standing and avoid further penalties from the taxation office.
- To get started with a tax debt loan, assess your financial situation first to see if it's the right solution for you. Talk to an expert with experience in refinancing ATO debt.
Tax debt can be a huge burden for Australian business owners. The Australian Taxation Office (ATO) can offer payment plans at their discretion for those struggling with tax debt. However, an ATO payment plan isn’t always the best solution or even possible at times. For some, a tax debt loan might be a better alternative. Let’s explore tax debt loans as a viable solution to ATO debt, comparing them to payment plans and offering insights on when they might be the right choice for you.
Understanding ATO Payment Plans
The ATO offers payment plans to help businesses settle their outstanding tax debts in instalments. This solution is often the go-to for businesses that can’t settle their ATO debt in one go. However, it’s important to understand the specific terms and possible limitations before committing.
What is an ATO Debt Payment Plan?
An ATO payment plan is a structured agreement allowing businesses to pay their tax debt over time rather than upfront. Once a business has demonstrated its inability to pay a debt in full, the ATO may allow payments to be made monthly, fortnightly, weekly, or through a lump sum, depending on the taxpayer’s cash flow.
ATO Payment Plan Interest Rate (GIC)
One factor to consider with an ATO payment plan is the interest rate applied to the outstanding debt. The ATO charges a General Interest Charge (GIC) on overdue payments, and this charge accrues daily as long as the tax debt is unpaid. This means that even when you already have a payment plan, you will still need to pay GIC. For some businesses, this interest rate might become a heavy financial burden.
How to Set Up a Payment Plan with the ATO?
To set up a payment plan with the ATO, you can use the online portal or self-help phone line if your debt is below $200,000. If it’s above $200,000, you should contact the ATO directly. Check the ATO’s online estimator to see if it’s possible for you to get a payment plan. Here’s what to watch out for:
- Upfront Payment: The ATO requires at least 5% upfront payment for a payment plan.
- Term Length: The maximum term length for an ATO payment plan is 2 years.
- Repayment Amount and Schedule: Check how much you have to pay depending on your chosen schedule (weekly, fortnightly, or monthly)
What Are Tax Debt Loans?
Tax debt loans are financing solutions that help you pay your obligations to the ATO. These loans provide immediate relief from tax debt pressures, often offering more flexibility than ATO payment plans.
Why a Tax Debt Loan Might Be a Better Alternative
While the ATO payment plan can be helpful, it’s not the only solution for businesses dealing with tax debt. A tax debt loan can offer specific advantages that an ATO payment plan cannot. Here are some reasons why a tax debt loan might be the better choice for your business:
Quicker Relief from ATO Pressure
One of the significant advantages of using a tax debt loan is that it can provide immediate relief from ATO pressure. Once the debt is paid off with the loan, your dealings with the ATO for your outstanding debt are ended, and you only need to worry about repaying the loan on your terms.
Potentially Lower Rates
The GIC on your tax debt accrues daily. The current rate set by the ATO is 11.38%, which translates to thousands of dollars, especially if you go for the maximum term length for a payment plan. By taking out a tax debt loan, you can avoid GIC entirely, since you’ll be clearing the debt in full and some tax debt loan solutions can have lower rates than the GIC.
Longer Repayment Terms
ATO payment plans typically have a maximum term of two years, which may make your repayments larger than your cash flow can manage. Tax debt loans, on the other hand, often offer longer repayment terms, allowing you to spread out payments over a more manageable period.
More Flexible Repayment Options
With a tax debt loan, businesses often have more flexibility in choosing the repayment term that best suits their financial situation. Lenders can provide a variety of loan terms that range from short-term solutions to extended repayment plans, potentially offering lower monthly repayments compared to an ATO debt payment plan.
Potential for Better Cash Flow Management
Tax debt loans can help you improve your cash flow by paying off one of the biggest financial stressors, tax debt. You can then make manageable payments to the lender, helping you preserve cash for daily operations and other expenses.
When to Choose Tax Debt Loans Over ATO Payment Plans
Choosing between an ATO payment plan and a tax debt loan depends largely on your business’s financial circumstances. Here are some situations where a tax debt loan may be a better option:
- Ineligibility for ATO Payment Plan: If your business does not qualify for an ATO payment plan due to the terms you require or past defaults, a tax debt loan can provide an alternative solution.
- Need for Greater Flexibility: If you require more flexible repayment terms to manage your cash flow effectively, a tax debt loan offers greater customization compared to the structured repayment schedule of an ATO payment plan.
- Urgent Relief from ATO Pressure: If you’re facing immediate pressure from the ATO to settle your tax debt and want to avoid potential legal actions or penalties, a tax debt loan can provide fast relief.
- Desire to Consolidate Debts: If you have multiple debts and want to consolidate them, a tax debt loan can allow you to bundle tax debt with other obligations, making repayments simpler and more manageable.
Key Considerations When Choosing a Tax Debt Loan
If you’re considering a tax debt loan as an alternative, keep the following factors in mind to ensure it’s the right fit for your business:
Interest Rates and Loan Fees
Interest rates and associated fees for tax debt loans can vary widely depending on the lender and the terms. Compare lenders to find a tax debt loan with competitive rates and minimal fees.
Loan Terms and Conditions
Ensure that the loan terms align with your business’s cash flow. While some tax debt loans offer extended repayment periods, others may come with shorter terms and higher monthly payments. Select a loan term that aligns with your budget and payment capacity.
Security Requirements
Both unsecured and secured tax debt loan options are available for businesses. Before committing to a loan, check if there are any security requirements. If you have no assets to use, you can always go for an unsecured tax debt loan.
Lender Reputation
Tax debt loans are available from non-bank lenders. Before choosing a lender, thoroughly research their reputation and experience in tax debt lending. Consult a loan expert if you want to find the best lenders in Australia for tax debt loans.
How to Get Started with a Tax Debt Loan
- Assess Your Financial Situation: Calculate your current tax debt, cash flow, and capacity to take on additional monthly payments. This assessment will help you determine the loan amount and terms that best suit your needs.
- Research Potential Lenders: Not all lenders specialise in tax debt loans. Look for lenders who understand the specific needs of Australian businesses dealing with tax obligations and can provide a tailored solution.
- Review the Terms Carefully: Once you receive loan offers, review the terms carefully, including the interest rates, repayment schedule, and any applicable fees.
- Work with an Expert: A financial expert with knowledge of tax debt loans can help you weigh their pros and cons versus an ATO payment plan. They can guide you in structuring repayments that align with your business goals.
Making the Right Choice for Your Business
The choice between an ATO payment plan and a tax debt loan ultimately depends on your business’s financial health, goals, and cash flow needs. If you value flexibility, predictable payments, and protection for your credit, a tax debt loan might be worth considering. However, if you prefer to work directly with the ATO, the payment plan option may still be feasible. In case you are rejected by the ATO for a payment plan, reach out to a lender or a lending expert right away to talk about your loan options.
Settle Tax Debt With the Right Financing
If you have outstanding debt with the ATO, a tax debt loan can be a game changer for you. The right financing can help you remain in good standing with the ATO and gain more control of your business finances. Reach out to us to know more about the right loan options for your business.
