The First step is always to contact any Creditor and have a chat when you are going to have a problem paying your Debt. The Tax Department is no Different. Quite often they will simply work out a payment with you to catch up and you move on.

If you need to make a payment arrangement with the ATO, you need to get your lodgements up to date.  That means that all the Activity statements (if you are a Sole Trader), PAYG payments for staff and BAS need to be lodged and continue to be lodged, even if you are in a Payment Arrangement.  If you work for someone else and owe personal tax, you will need to have done done your most recent tax return and this must have been lodged with the ATO.  

If you need Help budgeting for your payment plan or ongoing tax liability have a look at our Money Buckets Budgeting tool Small Business Budget with Tax.

If your debt is under $14,000 there should be no interest payable.  There will be interest charged on your outstanding amount, but it will be reversed each month.  That’s not to say there will be no fees charged by the ATO, there could be non lodgement fees and penalties fees.  Another good reason to get your lodgements up to date.  

If you are able to pay your tax debt within 2 years and your debt is under $100,000 payment arrangements can be made via an automated online system within the ATO.  Your MyGov Account will be the way to communicate with the ATO.  Be aware however, that if you fail to make the necessary payment or fall behind, you will need to renegotiate the debt repayment arrangement once again. 

If you leave your tax debt too long the ATO can issue a garnishee notice for your bank account.  The ATO can legally take money from your bank account to pay your outstanding tax debt.

The tax department could outsource your Tax Debt for Collection with a Debt Collector.  They will demand payment NOW.  It is always possible to make a payment arrangement, even if the Collection Agent says NO.

The ATO can also take your tax refund if you have a tax debt.  If you have a tax refund from this year’s return and you owe the ATO money from previous years your refund will be taken to offset any outstanding amounts.

The ATO can also go to the relevant court and seek a court order against you for payment, this could result in a bankruptcy notice.  This gives you 21 days to make an arrangement or pay in full to the ATO.  If you cannot do either of these options, the ATO could file a creditors petition against you to make you bankrupt.  The ATO is the major user of this facility.

The ATO can also wind up your company to seek payment of any outstanding debts.  A liquidator is appointed to sell any assets to recover funds to pay your ATO debt.

On the other hand, if you wind up a company that has failed, the Companies Tax Debt will not come over to you personally.

Personal Tax Debts can be put in Part IX Debt Agreements and will generally be accepted if Lodgements are up to date. However, The ATO will take Tax refunds to pay off this Debt faster during the Debt Agreement period. It is the only creditor in a Debt Agreement to be able to do this.  

It is more difficult but not impossible to put Tax Debts into an Informal Arrangement. There will be quite a lot of information required and negotiations to be done.

If you have Tax Debts either personal or from your business contact Money Buckets to discuss your options.