Compliance
Payment plan
A payment plan is an arrangement with the ATO to pay a tax debt in instalments over time. Interest generally continues to accrue, and the plan depends on keeping up with payments and lodgments.
A payment plan, sometimes called an instalment arrangement, is an agreement between a taxpayer and the ATO that allows a tax debt to be paid over a period of time instead of in one lump sum. It is available for debts such as GST, PAYG withholding, income tax and others. For many small businesses, it can make the difference between a manageable repayment and a cash flow crisis.
To set up a plan, the taxpayer contacts the ATO, usually through online services, with the help of a registered agent, or by phone. The ATO considers the size of the debt, the taxpayer's ability to pay, and their history of compliance. Smaller debts may be arranged more simply through online tools, while larger debts may require more information, such as details of income and expenses, and may involve the ATO asking for security.
A key condition is that all outstanding lodgments are generally up to date. The ATO is unlikely to agree to a plan if BAS or tax returns are overdue, because it needs accurate figures to know the debt. Lodging all overdue documents, even if you cannot pay, is therefore a first step. A plan also requires keeping current with new obligations, such as the next BAS payment, as they fall due.
A payment plan does not stop interest. The general interest charge usually continues to accrue on the outstanding balance until the debt is paid in full, so the longer the plan runs, the more interest is added. Paying the largest amounts you can afford, as early as you can, reduces the total cost. Penalties that have already been applied remain, although the ATO may consider remission in some cases.
If payments are missed or new debts arise and are not paid, the plan can be cancelled, and the ATO may then take recovery action. That can include garnishee notices, which take money from bank accounts or third parties, and, for companies, director penalty notices and other steps. Contacting the ATO before a payment is missed, rather than after, usually leads to a better result.
Many people feel embarrassed about contacting the ATO, but the ATO deals with a large number of such requests and generally prefers an early approach. Having your records ready, such as your cash flow forecast and details of the debt, helps. If your problems are more serious, it may be appropriate to seek advice from a registered tax professional or financial counsellor.
This page is general information only. Confirm your options with the ATO or a registered tax professional.
Worked example
A business owes $13,200 in GST after a slow quarter. It lodges all outstanding BAS and contacts the ATO, which agrees to a plan of $1,100 a month for 12 months. Interest continues to accrue on the unpaid balance, so the total paid will be a little more than $13,200. The business also pays its next BAS on time to keep the plan in place.
Practical tips
- Lodge all overdue BAS and returns before seeking a plan, since the ATO generally needs these up to date.
- Contact the ATO before you miss a payment, not after.
- Pay more than the minimum when possible, as interest keeps accruing on the balance.