Circumstances will sometimes get in the way of your ability to pay a personal or business tax debt on time.

If this is the case, it is vital to go on the front foot and put a payment arrangement in place with the ATO. For larger business debts, this is now more important than ever with new legislation allowing the ATO to disclose the business tax debt information of a taxpayer to credit reporting bureaus in certain circumstances.

A payment arrangement is basically an agreement between you and the ATO where you agree to pay off a tax debt over time in instalments. In return, the ATO agrees not to use its debt collection powers against you.

Payment arrangements can take a number of forms:

• Equal instalments at regular intervals
• An initial up-front payment, followed by equal instalments at regular intervals
• Equal instalments at regular intervals, which then step up to larger instalments at a nominated future date
• A single lump sum payment at a nominated future date on the occurrence of a specific event (e.g. a sale of business or sale of property).

A pre-requisite for the ATO entering into a payment arrangement is that the person or entity seeking the arrangement has lodged all outstanding tax obligations, such as BASs and tax returns. Basically, the ATO want to ensure that all tax debts have been reported before they consider an arrangement.

Note that small businesses that owe activity statement amounts may be able to make interest-free payments over 12 months.

You may be eligible for an interest-free payment plan if your business:

• has an annual turnover of less than $2 million
• has recent amounts owed from an activity statement of $50,000 or less that has been overdue for no longer than 12 months
• has good payment and lodgment history including
  • no more than one payment plan default within the last 12 months
  • no outstanding activity statement lodgments
• is unable to obtain finance (such as a loan) through normal business channels
• is able to demonstrate ongoing viability.

You must agree to a payment plan that allows the amounts owed to be paid by direct debit within 12 months. Even if you receive a letter stating that interest will apply, it will be remitted as long as you maintain your payment plan.

If the ATO can’t reach an agreement with you about paying amounts you owe, the ATO may consider accepting an offer of security where you either:

• request that the ATO defer the time of payment of a debt
• seek to pay a debt by instalments.

The ATO’s preferred securities are:

• a registered mortgage over freehold property
• an unconditional bank guarantee from an Australian bank.

We are regularly involved in the negotiation of payment arrangements for our clients.

If you owe the ATO a debt which you can’t pay in full by the due date, please contact us to discuss your options.