How to manage ATO debt effectively

The ATO has flagged that one of their key focus areas for the current year is the collection of outstanding debt. During the height of the pandemic, the ATO took a more lenient approach to collecting debt and chasing outstanding lodgements. According to the ATO, this has led to some businesses deprioritising paying their tax and super.

The amount of debt owed to the ATO has risen significantly. In February 2021, the ATO had collectible debt of $32 billion. The debt has increased to approximately $50 billion currently. Small businesses owe about 2/3rds of the debt.

ATO debts may include income tax, GST, PAYG Withholding, PAYG Instalments, Superannuation Guarantee Charge, and Fringe Benefits tax.  The ATO will charge interest on outstanding debts; the current interest rate is 11.38%. The interest rate is updated quarterly.

What you need to do

Assess your Situation

Start by assessing your financial situation realistically. You need to determine how much is owed to the ATO and your future ATO debts (e.g., PAYG withholding, GST). You will then need to assess your ability to pay the ATO debt. The ATO has a Business Viability Assessment Tool, which may provide some assistance. Your accountant will also be able to assist you.

Communicate with the ATO

The key to dealing with an ATO debt is to engage with the ATO. By not engaging with the ATO, you are inviting the ATO to take stronger measures. These stronger measures may include referring your debt to a debt collector, issuing Director Penalty Notices, garnishee notices, winding up applications, and disclosing tax debts to credit bureaus.

If your ability to pay your debt is caused by a temporary issue, then you may be able to defer your tax debt with the ATO. If this is not the case, then you may need to consider a payment plan.

Payment Plans

If settling your debts in one payment is not possible, you may be able to enter into a payment plan. The ATO will usually only consider a payment plan when there are no outstanding lodgements (Income Tax and BAS).

Self-Service Payment Plan

If your debts are under $100,000, the ATO provides a self-service payment plan option. The proposal plan should cover a period of less than two years, with the first payment scheduled within 7 or 14 calendar days of the request. The debt should not have a current payment plan. This plan often means you do not need to interact with ATO staff directly.

Proposing a Payment Plan

You can propose a payment plan to the ATO. The ATO has a Payment Plan Estimator, which is a handy tool and is also used by ATO staff.  The ATO will assess your capacity to meet the payment plan, and the ATO may request information from you to verify your capacity to pay.

When you have agreed to a payment plan with the ATO, ensure you adhere to the payment plan terms. It is also worth noting that a condition of any payment plan with the ATO is that all future obligations (Income Tax, BAS, etc) are lodged and paid on time. If this is not done, the payment plan may default, and the debt will revert to being overdue.

If you have a debt with the ATO and aren’t sure what to do next, contact your local Accru advisor.

About the Author
Martin Rush , Accru Perth
Martin’s hands-on approach to understanding his clients’ needs enables him to find the best possible solutions for them. His approach builds trust and has enabled him to forge many long-term relationships over his 20-year career. Martin Rush joined Accru Page Kirk & Jennings in 1993 after completing his Bachelor of Business degree.
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