How To Set Up a Payment Plan With the ATO

February 20, 2024
minutes to read
Jaala Alex
Table of Contents

Today, we'll dive into a crucial topic that many entrepreneurs encounter: dealing with tax debt owed to the Australian Taxation Office (ATO). Small business tax debt can happen for various reasons, but addressing it proactively and efficiently is vital. In this blog, we'll walk you through the steps to set up a payment plan with the ATO, ensuring you regain control of your financial situation while safeguarding your business's future.

Why Do I Owe the ATO Money?

Before we delve into the nitty-gritty of setting up a payment plan with the ATO, it's crucial to understand why you might find yourself owing money to the tax authorities. Small business tax debt can accumulate for a variety of reasons:

  1. Fluctuating Cash Flow: Small businesses often experience unpredictable income fluctuations. In some months, revenue may fall short of tax obligations, leading to debt accumulation. 
  2. Unexpected Expenses: Unforeseen business expenses, such as equipment repairs or emergency purchases, can strain your finances, making it challenging to meet tax deadlines. 
  3. Tax Oversights: Tax regulations can be intricate, and overlooking deductions or failing to claim eligible tax credits can result in underpayment. 
  4. Economic Downturns: Economic downturns or market shifts can impact business profitability, making it harder to meet tax obligations.

Regardless of the reason, the key is promptly recognising the issue and taking action. Ignoring tax debt can lead to mounting penalties and interest, so it's essential to address it proactively.

What Happens When You Owe the ATO Money?

Understanding the consequences of owing money to the ATO is crucial for small business owners. Ignoring or neglecting your tax debt can lead to a series of unwelcome outcomes:

  • Accumulating Interest and Penalties: The ATO imposes interest charges and penalties when you fail to pay your tax debt on time. These can significantly increase the total amount you owe. 
  • Legal Action: In extreme cases, the ATO can take legal action to recover the debt. This may involve garnishing wages, freezing assets, or pursuing court orders to collect the funds owed. 
  • Business Restrictions: Outstanding tax debt can restrict your business activities. The ATO may withhold tax refunds, suspend Australian Business Numbers (ABNs), or even initiate bankruptcy proceedings in severe cases. 
  • Negative Impact on Credit Rating: ATO debt can negatively impact your personal and business credit rating, making it challenging to secure loans or credit in the future.  

Given these potential consequences, it's clear that addressing your ATO tax debt is of utmost importance. Setting up a payment plan with the ATO is a proactive step to prevent these adverse outcomes and regain control of your financial stability. The following section will explore how to initiate this process effectively. 

Can I Set Up a Payment Plan with the ATO? 

The good news is that you can set up a payment plan with the ATO to manage your small business tax debt. A payment plan, also known as a repayment arrangement, allows you to pay off your tax debt in manageable instalments over a specified period. 

Here's how you can go about it: 

  1. Contact the ATO: Reach out to the ATO as soon as you realise you have a tax debt. The sooner you address the issue, the better. You can contact them by phone or through their online services. 
  2. Provide Necessary Information: Be prepared to provide details about your financial situation, including your income, expenses, and assets. The ATO will use this information to assess your ability to make regular payments. 
  3. Negotiate Terms: The ATO will work with you to determine a suitable payment plan. This plan will include the amount you need to pay, the frequency of payments, and the arrangement duration. 
  4. Stick to the Plan: Once the payment plan is in place, adhering to the agreed-upon terms is crucial. Missing payments or defaulting on the plan can lead to additional penalties and consequences. 
  5. Review and Adjust if Necessary: If your financial circumstances change during the payment plan, contact the ATO promptly to discuss adjustments. They can modify the plan to suit your current situation better. 

Setting up a payment plan with the ATO can be a practical solution for managing your tax debt while maintaining the financial health of your small business. 

Can You Pay Instalments to ATO? 

Indeed, you can pay your tax debt to the ATO in instalments. This approach offers flexibility and eases the burden of a lump-sum payment. 

As mentioned earlier, the first step is to contact the ATO and negotiate a payment plan. The ATO provides various payment methods to accommodate your preferences. You can make payments electronically through their online portal, via direct debit, or by sending a check or money order. 

Many businesses opt for direct debit arrangements, where payments are automatically deducted from your nominated bank account on the agreed-upon dates. This minimises the risk of missed payments. If your financial situation improves, you can consider making additional payments or paying off the debt earlier than planned. This can help you save on interest and penalties. 

It's crucial to maintain open communication with the ATO throughout the payment plan. If you encounter challenges or need to adjust the plan due to unforeseen circumstances, don't hesitate to contact them and discuss your options. 

How Thriday Can Help You Avoid Having an ATO Tax Bill 

Navigating the complexities of taxation and financial management for your small business can be daunting. That's where Thriday comes into play. We understand that staying on top of your tax obligations is crucial for the success and longevity of your business. Let's explore how Thriday, powered by cutting-edge technology and artificial intelligence, can be your trusted partner in this journey: 

  • AI-Driven Solutions: Leveraging artificial intelligence, Thriday provides data-driven solutions that streamline your accounting processes. Our AI algorithms can analyse your financial data, identify potential tax deductions, and help you make smarter financial choices. 
  • Real-Time Financial Insights: Stay updated on your business's financial health with real-time reporting and insights. Thriday's tools provide a comprehensive view of your income, expenses, and tax obligations. 
  • Timely Tax Filings: Meeting tax deadlines is crucial to avoiding penalties and interest charges. Thriday's automated reminders and tax filing assistance ensure you never miss a deadline again. 
  • Education and Support: Thriday offers resources and educational materials to empower you with the knowledge to manage your finances effectively. We're here to answer your questions and provide ongoing support. 

By partnering with Thriday, you can proactively manage your tax matters, reduce the risk of accumulating ATO tax debt, and ensure the long-term financial health of your small business. 

Track your real-time tax position with Thriday

What Payment Options Do the ATO Accept? 

You'll be pleased that the ATO offers various payment options to accommodate your needs. Here's an overview of the payment methods accepted by the ATO: 

  • Online Payments: The ATO provides a secure online portal where you can make payments electronically. This method is convenient and allows you to schedule payments in advance. 
  • Direct Debit: Many businesses opt for direct debit arrangements, where the ATO deducts the agreed-upon instalment amount directly from your nominated bank account on specified dates. This ensures timely payments without manual intervention. 
  • Credit or Debit Card: You can use your credit or debit card to make payments through the ATO's online portal. Keep in mind that credit card payments may involve processing fees. 
  • BPAY: BPAY is a popular payment method in Australia, and the ATO accepts BPAY payments. Use the BPAY details provided by the ATO to initiate payments through your bank's online banking platform. 
  • Australia Post: If you prefer in-person payments, visit an Australia Post office and make cash, check, or EFTPOS payments. Be sure to bring your payment reference number.
  • Cheque or Money Order: You can mail a cheque or money order to the ATO. Remember to include your payment reference number and allow ample time for processing. 
  • Payment Plans via MyGov: If you have a MyGov account linked to the ATO, you can set up and manage your payment plan directly through the MyGov portal. 

Do ATO Payment Plans Affect Your Credit Rating? 

One of the concerns that often looms over small business owners when setting up an ATO payment plan is how it might impact their credit rating. Let's clear the air on this matter...

Setting up a payment plan with the ATO does not directly affect your credit rating. The ATO doesn't report payment plans to credit reporting agencies, so your credit score won't take a hit solely because of the arrangement. 

However, it's crucial to understand that your credit rating can indirectly be affected if you fail to meet the terms of your payment plan. To maintain good standing, make payments according to the agreed-upon schedule. Missing payments or defaulting on the plan can lead to the ATO taking further action, which may impact your creditworthiness. 

If you consistently fail to meet your payment plan obligations, the ATO may escalate the situation by initiating debt collection efforts or legal action. These actions can potentially harm your credit rating. 

How Do I Close My Business with ATO? 

Closing your business is a significant decision, and handling your tax matters properly with the ATO before proceeding is essential. Here are the steps to ensure a smooth closure: 

  1. Notify the ATO: Inform the ATO of your intention to close your business. You can do this by submitting the appropriate forms, such as the "Notification of Intent to Cancel Registration" form for Goods and Services Tax (GST). 
  2. Settle Outstanding Tax Debts: Ensure all tax obligations are settled before closing your business. This includes income tax, GST, and any other outstanding payments. 
  3. Finalise Business Activity Statements (BAS): Lodge any outstanding BAS and reconcile your accounts for the final reporting period. This step ensures that your tax obligations are up to date. 
  4. Cancel Registrations: If your business is registered for GST or other tax purposes, cancel these registrations with the ATO. This step will help avoid unnecessary obligations in the future. 
  5. Distribute Assets and Settle Debts: If any remaining assets or liabilities exist, distribute or settle them according to the legal requirements and your business structure. 
  6. Lodge Final Tax Returns: Depending on your business structure, you may need to lodge final tax returns for the business and its owners or partners. Seek professional advice to ensure accuracy. 
  7. Cancel Australian Business Number (ABN): If you have an ABN, cancel it through the Australian Business Register (ABR) to officially close your business. 
  8. Keep Records: Maintain records of all the steps taken during the closure process, as you may need them for tax or legal purposes. 
  9. Seek Professional Assistance: Closing a business can be complex, and it's advisable to consult with an accountant, tax professional, or legal advisor to ensure compliance with all regulatory requirements. 

Remember that closing a business can vary based on your business structure and circumstances. Following the correct procedures and meeting all legal obligations is crucial to avoid future complications or penalties. 

ATO Payment FAQs 

Can I negotiate the terms of my ATO payment plan? 

Yes, you can negotiate the terms of your payment plan with the ATO to suit your financial circumstances better. It's essential to communicate openly with them about your situation. 

What if I miss a payment on my ATO payment plan? 

If you miss a payment, contact the ATO immediately. They may be willing to work with you to find a solution. Ignoring missed payments can lead to penalties and further consequences. 

Can I pay off my ATO debt early if my financial situation improves? 

Absolutely! Paying off your ATO debt early can help you save on interest and penalties. Contact the ATO to discuss making additional payments or settling the debt ahead of schedule. 

Will setting up an ATO payment plan affect my personal or business credit rating? 

The act of setting up a payment plan itself does not affect your credit rating. However, consistently missing payments or defaulting on the plan can indirectly impact your creditworthiness. 

Can I dispute the amount I owe the ATO? 

If you believe there is an error in the amount you owe, you can dispute it with the ATO. Provide supporting documentation and follow their dispute resolution process.

Can Thriday assist me in managing my ATO tax debt? 

Thriday offers expert guidance and AI-driven solutions to help you manage your tax matters proactively, minimising the risk of accumulating ATO tax debt. 

What should I do if I decide to close my business with the ATO? 

Closing your business with the ATO involves several steps, including settling outstanding tax debts, cancelling registrations, and finalising tax returns. 

Key Takeaways

As we conclude this comprehensive guide on setting up a payment plan with the ATO to manage your small business tax debt, it's essential to reflect on the key takeaways: 

  • Proactive Approach: Addressing your tax debt and financial obligations to the ATO proactively is essential to avoid escalating penalties and consequences. 
  • Communication Matters: Open and honest communication with the ATO is crucial. If you encounter challenges with your payment plan or tax matters, feel free to ask for assistance. 
  • Professional Guidance: Seek the expertise of professionals like Thriday to navigate the complexities of tax management and financial planning. Our AI-driven solutions and expert advice can be invaluable in safeguarding your business's financial health.
  • Responsibility Pays Off: Responsible financial management, consistent payments, and adherence to tax regulations are the cornerstones of a successful small business. Setting up a payment plan with the ATO is a responsible step toward addressing your tax debt. 
  • Plan for the Future: Beyond addressing your current tax debt, planning for the future is essential. Effective tax planning and financial management can help you avoid similar challenges in the years ahead. 

Remember that you are not alone in this journey. Thriday assists you with your accounting and tax-related needs, providing the tools and knowledge to make informed financial decisions. 

By following the steps outlined in this guide, you can set up a payment plan with the ATO, take control of your tax debt, and ensure the long-term success of your small business. Financial stability and peace of mind are worth every effort invested in effectively managing your tax matters.

DISCLAIMER: Team Thrive Pty Ltd ABN 15 637 676 496 (Thriday) is an authorised representative (No.1297601) of Regional Australia Bank ABN 21 087 650 360  AFSL 241167 (Regional Australia Bank).  Regional Australia Bank is the issuer of the transaction account and debit card available through Thriday. Any information provided by Thriday is general in nature and does not take into account your personal situation. You should consider whether Thriday is appropriate for you.

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