Negotiating an ATO Payment Plan

Payment plan for tax debt and Defaulting on tax payment plans

If you have an ATO debt you can’t pay upfront, you can arrange an payment plan for tax debt. This is an agreement between you and the ATO where you agree to pay off your tax debt over time in instalments. In return, the ATO agrees not to use its debt collection powers against you. Obtaining an payment plan for tax debt payment arrangement with the ATO is one thing. Keeping the tax plan for tax debt payment arrangement on track is a different story. We have listed just some of the ways your payment plan can default. Of course, there are other alternatives and sometimes these are worth exploring, such as restructuring, refinancing or liquidation.

Payment plan for tax debt amount not being received on time

This may seem obvious, but an ATO tax debt payment plan or arrangements often default due to late payments.

Usually, the payment is made on the due date, and no time is allowed for the payment to clear into the ATO’s system. It’s essential to note that the due date for payment refers to when the payment should be received by the ATO. This keeps your ATO debt payment plan in check
Ensure that you check how long your payment type takes to clear, so you know your payment will be processed on time.

Paying into the wrong account

If you’re running a business, you will usually have more than one account with the ATO.
You will usually have an income tax account and an integrated client account (which is for your GST, pay-as-you-go withholding, etc.).

You might also have other accounts, such as:

• • A legal action account – you will have this if the ATO has initiated debt recovery proceedings against you for unpaid tax.

• • A superannuation guarantee account – you will have this if you have missed payments for your employees’ superannuation.

• • It can be challenging to keep track of all these accounts. However, you must do so – especially when you’re in an ATO tax payment plan or arrangement.

• • Let’s say you have two tax debts (for different types of tax). These debts might be owed on your integrated client and income tax accounts. When you enter into a payment arrangement with the ATO for these accounts, the ATO views these as two separate arrangements that require separate monthly payments.

• • So, you may have a payment arrangement of $1,000 per month in your integrated client account and $400 per month in your income tax account. The payment details for each of these accounts will be different. This means you must be careful when making your monthly payments. Ensure that each payment is deposited into the correct account. If you accidentally make both payments to the same account, one of your ATO payment plan arrangements will default.

• • Unfortunately, the ATO doesn’t monitor your accounts to ensure your payments are going into the right place – this is up to you! So be careful – you don’t want a simple mistake to trigger a default.

• • You ignore the payment of tax debt ATO plan altogether, defaulting in your ATO debt repayment plan

Your ato payment is less than expected!

The ATO’s system examines each payment it receives and compares it to what it expects. If one payment is less than expected, it will flag a default. For example, a default happens if the ATO expects $1,000 per month, and you pay $1,200 monthly and $800 the next month. Your agreement with the ATO is to pay $1,000 per month; any amount less constitutes a default.

Your additional $200 payment from the previous month is optional. It doesn’t apply as a pre-payment toward next month’s payment.

Similarly, getting a tax credit or refund (for example, a GST credit) does not affect your payment plan. However, it won’t replace your regular required instalment payment, so you must keep paying your usual monthly amount.

Not keeping up with all future obligations.

If you’re in a payment arrangement, you must ensure you meet all your future tax obligations. This means that you must submit all your future lodgements on time and pay any new tax debts by the due date. These new debts aren’t part of the payment arrangement – if you don’t pay them, you will default.

What to do if you think you’re going to default on your Payment plan for tax debt !

If you can’t pay your instalment by the due date, the best thing to do is contact the ATO. You should do this as soon as you realise you have a problem.

You may be able to renegotiate the arrangement so that it doesn’t default. It’s much better to do this than wait until a default has happened. Your payment and default history influence the ATO’s decision about whether you can enter into a new arrangement and what the terms of that arrangement should be.

For example, if you have a terrible compliance history, the ATO may ask you to pay a large upfront payment or pay by direct debit. A poor compliance history can also mean that the ATO will only agree to a temporary payment arrangement – e.g. 6 months instead of a year.

Because your payment history influences the terms of future payment arrangements, it’s best to keep in contact with the ATO. Try to renegotiate your payment arrangement before a default happens.

What happens if you default on your ATO repayment plan

If you are on an Australian Taxation Office ATO payment plan and you default on your payments, several steps may be taken by the ATO:

Payment Default Notice: The ATO typically sends you a default notice if you miss a payment on your payment plan. This notice will inform you that you are in default and will usually provide instructions on what to do to rectify the situation.

Contact from ATO: The ATO may contact you via phone, email, or mail to discuss the default and try to find a solution. Based on your financial circumstances, they may be willing to modify your payment plan or negotiate a new arrangement.

The Financial Impact of a Tax debt repayment Plan Default

Additional Penalties and Interest: When you default on your payment plan, the ATO may impose additional penalties and interest charges on the outstanding amount. These can increase the total amount you owe.

Debt Collection: If you continue to default on your payments and do not respond to the ATO’s attempts to contact you or make arrangements, the ATO may escalate the matter to a debt collection agency.

Legal Action: In extreme cases, if you consistently fail to make payments and do not respond to the ATO’s attempts to resolve the issue, the ATO may take legal action to recover the debt. This could include obtaining a court judgment against you.

Communicating with the ATO as soon as you encounter financial difficulties is essential to avoid defaulting on your ATO payment plan.

If your payment arrangement defaults, the ATO can use one of its many debt-collection powers against you. This can include issuing a garnishee notice to your bank. Or worse, serving you with papers to try to wind up your company or make you bankrupt.

You should try to avoid default, as it is becoming more difficult to renegotiate with the ATO. The ATO can request additional information about your finances and assets to ensure you won’t default again.

It should be noted that from 1 July 2025, you will no longer be able to claim the interest the ATO charges on your debt.

Therefore, this makes ATO debt more expensive, and if possible, you may find other types of finance to be cheaper.

Contact us for assistance and allow us to negotiate on your behalf. Contact Michelle at our Office on 95979966