If you have been or are unable to meet your tax obligations on time, being proactive and setting up a payment plan with the ATO can be one of your best options. If you ignore it instead, the ATO may enforce action against you to recover the debt and this comes along with a high chance of leaving you in a worse position.
A payment plan would allow you to pay your debt over instalments. It’s essential to be prepared and do it right the first time because the consequences of defaulting on these payments can be harsh.
Your preparation can be split into three main steps: understanding what the ATO expects; understanding how the ATO is likely to perceive you; and planning your proposal to the ATO.
1. Understanding what the ATO expects.
The ATO’s approach is to generally seek for you to pay as much as you possibly can as soon as you possibly can.
They will also expect you to pay all tax lodgements in full on time in the future. This is important to note because, in this case, you will be paying two sets of taxes at a time: the regular taxes you have to pay and the payment plan debt instalments.
If you don’t lodge either set of taxes on time, that will be considered a default of the plan, and the ATO may take action against you. At the very least, it will be harder to get reasonable payment plans in the future.
2. Understanding how the ATO may perceive you
The ATO may presume that you have the money in an asset such as a house or a car. If this is the case and you want a payment plan of longer than 24 months, they might ask for security over your house.
The ATO would otherwise be looking for a exceptional circumstance that would compel them to give you a payment plan and allow you to pay your debts over a longer period of time.
3. Planning your proposal
To be successful in overcoming your debt, you first need to be honest with yourself about your situation. You need to do the math and see how much you can realistically pay off in each instalment.
Then, you need to communicate this with the ATO in as much detail as possible. As mentioned earlier, the ATO will seek special circumstances that would explain the need for a payment plan, so it is essential to emphasise your unique situation. Provide them with substantive proof if you have any. For example, if you have been unable to pay your tax obligations on time due to a reduced turnover as a result of COVID-19, provide bookkeeping evidence and applications for rent relief if applicable.
The ATO generally will not seek actions against you if you’ve had a good record with them. However, they may pressure you to adopt a tighter payment plan. It is important to stand your ground and be upfront and realistic with what you can afford. If you take on a payment plan you cannot keep up with, the situation will worsen, and they may be able to seek action against your business with justification.
If at some point during your payment plan period, you find that you cannot pay an instalment, contact the ATO before the due date, and you may be able to modify your instalment amount or due date.
Following these steps will ensure that you have the greatest chance of setting up a successful payment plan and overcoming your debt.
If you require further assistance or have any questions, contact us now.