What Should I Do if I’m Struggling to Pay My ATO Debts?

As the world economic climate becomes uncertain and the cost of living increases, individuals and businesses may sometimes find it challenging to pay their ATO debts on time. However, there are several options available to manage these debts, and it’s important to act early.

The ATO is generally more supportive when lodgments are up to date and compliance is being demonstrated. To ensure compliance, it’s vital to work alongside your accountant to ensure that all necessary documents—such as tax returns, Business Activity Statements (BAS), and Superannuation submissions—are lodged on time.

Ignoring ATO correspondence is not advisable. The ATO prefers taxpayers to engage early and demonstrate transparency. Late lodgment and defaulting on payment plans can often lead to increased penalties and reduce flexibility when negotiating terms.

The main options available when facing financial difficulty are:

1. Payment Plans

You can arrange a payment plan either through your accountant or via ATO Online Services. The plan can be set up to make payments weekly, fortnightly, or monthly. While General Interest Charges (GIC) may still apply, this option ensures that your account remains compliant.

Important to note: If there are multiple debts, such as an Income Tax Return debt and a BAS debt, you will need to set up separate payment plans for each debt.

For more details on payment plans, visit the ATO's official page on payment arrangements.

2. Interest and Penalty Remission

If you have a good compliance history or extenuating circumstances, the ATO may reduce or cancel GIC and/or penalties. To request this, your accountant or you can contact the ATO directly. The request must explain why the lodgment or payment was late and will be considered on a case-by-case basis.

For more information on remission requests, check the ATO’s remission guidelines.

3. Deferrals

Lodgment and payment deferrals may be available for reporting such as BAS, Income Tax Returns, and the Instalment Activity Statement (IAS). Payment deferrals might also be possible for future liabilities that you are aware of.

Deferrals are often a short-term solution but may be extended based on individual circumstances. If you need to apply for a deferral, reach out to the ATO or your accountant.

For deferral guidelines, visit the ATO deferral page.

4. Extreme Hardship and Debt Release

If your financial situation worsens, and you are unable to meet basic living expenses, there are further options to explore with the ATO. In extreme cases, you may be eligible for a release from some or all of your tax debt. However, this requires strong proof, including a detailed assessment of your income, assets, and dependents.

This is assessed very strictly, and your application will be considered on a case-by-case basis. It is essential to approach this process with the assistance of your accountant to ensure all necessary evidence is submitted.

What This Means for You

If you're struggling with ATO debts, the most important thing is to engage early. The earlier you communicate with the ATO and set up a payment plan, the better the chance of mitigating penalties and securing more flexible terms. Keep your accountant informed and seek their assistance to ensure you’re fully compliant.

If you're unsure about any of these options or need help navigating them, contact your existing accountant at FAJ, or speak with our Reception team for further assistance.