From time to time we can all have difficulty in paying our tax obligations with the ATO, due to financial or other difficulties.
So we can ask for a payment arrangement to pay the debt off.
When a payment arrangement is negotiated with the ATO for either your income tax account or your activity statement account, adhering to the arrangement is imperative.
If your debt is less than $25,000, you are more than likely able to use the ATO’s automated phone service, depending on your past history as a taxpayer. The automated system allows you to put an arrangement in place without speaking to a “real” person at the ATO.
If the debt is larger than $25,000, or you are ineligible for an automatic acceptance, the ATO may still enter into an arrangement, depending on your circumstances.
In some cases, further information on your financial position may be required by the ATO to ensure that you meet the “capacity to pay” requirements.
The ATO may require answers to the following questions:
- how the debt arose;
- what you have done to avoid these circumstances in the future;
- who you bank with and whether you have an overdraft facility;
- average monthly income and expenses;
- what your major assets and liabilities are; and
- whether you can borrow against an asset and details of your current debtors and creditors.
Once you’ve committed to a payment plan, you need to pay all instalments and new tax liabilities as they arise, on time and in full. If you don’t, you’ll default on the plan.
Once a plan has defaulted, the ATO may then impose more precise requirements before they will agree to another arrangement.
Whether you are in a payment arrangement or not, if you don’t pay your tax on time, general interest charges will accrue from the due date until the amount is paid in full. The longer you take to pay off your debt, the more it will cost you in interest. In some cases, we may be able to have the interest charges remitted once the debt is paid, depending on the circumstances.
It is always best to pay your tax debt by the original due date however, we understand this is not always possible.
If you find yourself in a position of financial difficulty, please speak up before the nasty letter arrives from the ATO. We are more than happy to assist you in setting up an arrangement. After all, you don’t want to get to the stage that they commence garnishing your income direct from your bank account.