What happens if I can’t stick to my ATO Payment plan obligation?

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According to the Australian Tax Office’s Commissioner of Taxation Annual Report 2021-2022 the ATO was owed $44.8 billion in collectable debt as of 30 June 2022 – up from $26.5 billion just 3 years earlier. In their report the commissioner outlined the ATO’s approach of “firmer and stronger actions” to recover outstanding tax and, as any business owner knows, being on the receiving end of the ATO’s firmer and stronger action is not where you want to be.

With the outstanding debt to the tax office being so high a record number of businesses are on payment arrangement plans – some ATO payment plans can even extend out for a number of years.

With that in mind, in this article we’ll seek to explain what is an ATO payment plan, what happens if you can’t meet your ATO payment plan obligations, whether you can get a loan to pay out tax debt and which tax debt loan would be right for your circumstances.

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What Happens if You Owe ATO Money?

When you miss payments with the ATO, they are usually willing to work with you so you can catch up on payments. If you think you won’t be able to make a payment on time, contact the ATO before your due date. They are more than happy to work with you so you can get back on track. For every day you don’t pay, the ATO adds a General Interest Charge (GIC) to what you owe, making the amount larger as it goes unpaid. Penalty fees and general interest charges can make up a sizable portion of a business’ tax debt to the ATO.

If you still can’t meet your tax obligations, the ATO will take escalating actions that can lead to severe legal consequences. For this reason, it’s crucial to consider all avenues of tax debt repayment, starting with an ATO Payment Plan.

What is an ATO Payment Plan?

An ATO payment plan is a repayment plan that breaks your outstanding tax debt that allows you to pay by installments that are paid back over a period of time. Instalments could be paid weekly, fortnightly or monthly and can extend out over a considerable period of time, sometimes years.

It’s important to know that a payment plan won’t incorporate future tax owed after you complete new Business Activity Statements and for that reason, to be considered compliant with your payment plan, you will need to keep up to date with future tax obligations. This means activity statements and tax returns need to keep being lodged on time while you’re paying your ATO payment plan installments.

For these reasons, when entering into a payment plan with the ATO, it’s a good idea to consider your future cash flow requirements within your business and what you can afford to repay inclusive of your future tax obligations.

What happens if I can’t stick to my ATO Payment Plan?

If you can’t stick to your ATO payments there are a number of actions the ATO can take in addition to charging interest, compounding daily, which can make your tax debt even higher.

In addition to penalty interest, other actions the ATO can take could include:

A Garnishee Notice can be issued by the ATO to any person or business that holds money for you. Commonly business owners think this will only apply to your bank but the ATO can also send a garnishee notice to your customers as debtors for your business. If you’ve given the ATO a copy of your accounts receivable report as part of the documentation required for your payment plan, they have a list of your customers and could send them a garnishee notice.

A Director’s Penalty Notice (DPN) is a notice the ATO can issue that can make a director personally liable for their business’ outstanding tax debt.

Disclosure of business tax debt to Credit Reporting Bureaus: The ATO has entered into agreements with CreditorWatch and Equifax meaning your business tax debts can be disclosed to credit reporting bureaus and appear on your credit files.

Bankruptcy, Statutory Demands and Wind-Up Action are all actions the ATO can pursue. It should be noted the ATO is the most common creditor pursuing wind up action against Australian businesses.

What happens if my ATO payment plan isn’t long enough?

One of the biggest complaints business owners share with us about their ATO payment plans is when their payment plan isn’t long enough. Like any debt, if you’re forced to pay your tax debt over too short a period of time the high repayments can place a severe burden on business cash flow. In turn cash flow issues caused by repayments that are too high can make it difficult to pay wages, suppliers and other input costs that need to be paid to keep the business working and the revenue coming in.

If your ATO payment arrangement can’t be negotiated to a longer repayment period it could cause you to default on your agreement with the ATO which could lead to enforcement action.

It’s for this reason many business owners ask us about getting a loan to pay back their tax debt over a longer period of time.

Can I get a loan to avoid ATO enforcement action?

Despite what you may have heard from your major bank, yes, it is possible to get a loan to pay out tax debt and there are many different loan types you can use including:

Overdrafts are a line of credit that can be accessed to pay out tax debt and these could be an unsecured overdraft or an overdraft that’s secured with a mortgage over property.

Our unsecured overdraft facility is a genuine revolving line of credit which provides up to 4 years extended term to pay down your tax debts or can provide the support for short periods when business cash flow is tight. Many business owners use an overdraft as a cash flow backup in addition to ATO payment plans to help support them stay compliant with their payment plan. The application process is done over the phone and no documents are required for limits up to $500,000.

Unsecured Term Loans: Whilst major banks won’t provide loans for paying off tax debt many unsecured lenders are happy to provide funding to pay out the ATO. This provides a solution to business owners who don’t own property or don’t wish to use property as security for their business lending. The other benefit of using an unsecured lender is their no-doc loan application process. The loan application can be without financials for loan amounts up to $500,000 and can be approved within hours.

Bridging finance and short term property loans, like second mortgages, can be used when paying off tax debt. For those considering using their property, a short-term property loan can be a bridging finance solution that steps in while you wait for major bank funding to settle or make sure you are compliant with bank lending policy.

If you’re not sure if your tax debt could affect your major bank lending or existing finance, we recommend you talk to an expert to make sure you don’t get any nasty surprises during your annual reviews. Talk to an expert here.

Private Loans: For businesses seeking alternative financing ATO payment options, there are private lending solutions that can be accessed for tax debt loans. Private lenders do not credit score and their application process is focussed on the value of the security offered and a suitable exit plan. These features make them a viable tax debt loan solution for those with bad credit to pay out your ATO debt.

Private lenders prefer interest only loans and offer capitalised interest which can mean no repayments for up to a year. The benefit of a private loan solution can ease cash flow but it’s important to get expert advice to make sure this is the right loan solution for your business.

Which tax debt loan is right for my situation?

We provide tax debt loan solutions for businesses of all sizes and stages, from start-ups to established enterprises – no matter where you are in your business journey.

Bad credit history or a lack of financials shouldn’t hold you back and there are often solutions available even if your credit history is less than perfect.

By choosing the right tailored tax debt loan solutions, you can effectively manage your tax liabilities and ATO payment arrangement to keep your business thriving. Contact us today to discuss your options and find the perfect solution for your business.

Disclaimer: The information provided in this article is opinion only and should not be construed as financial, tax or investment advice or relied upon for any purpose.

Before making any investment decision, you should seek advice from a qualified professional who can take into account your specific circumstances and objectives.

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