The challenge with business tax in Australia is it is generally filled in a retrospective way. You earn revenue and pay your expenses, then you work with your accountant to figure out what you owe in tax.
With money coming and going from your business accounts constantly, even if you are vigilant and do your forecasting, it’s possible to find yourself with a shortfall when it comes to paying your tax bill. This can happen because you are owed money from creditors or you earned more than expected and didn’t set enough funds aside to cover the resulting tax bill.
In an ideal world, your finances would run like clockwork and you would work with your tax accountant to ensure you are ready to pay GST, PAYG tax on behalf of your employees and company tax each quarter. However, if your tax bill comes in and you don’t have the funds you need, it is possible to arrange a payment plan with the ATO.
Note that this article is not personal financial advice. If you have an outstanding tax debt, speak with a financial professional to figure out the exact best steps for you.
ATO payment plans: what you need to know
The Australian Tax Office operates like a business, and every business needs to be paid. However, it does allow you to pay your tax bill in installments.
As shared on the ATO website, “Within a payment plan, you pay back an agreed sum of money weekly, fortnightly or monthly until the balance is cleared.”
Let’s say you receive a tax bill of $50,000 and you can only afford to pay $5,000 upfront. You can speak to your accountant about arranging a payment plan on your behalf.
Generally speaking, you will be required to pay at least 10% of the debt within 7 days from the start date of your payment plan so you can contribute the $5,000 you already have.
This will leave you with a debt of $45,000. If you break this into monthly installments of $5000 per month, there will be 9 monthly repayments of $5,000, plus a final payment of $1,687.16.
The ATO charges interest in a similar way to the bank so the final payment reflects the general interest charged during the payment plan. If you decide to make larger repayments, your interest obligations will change.
The longer you spend paying off your debts, the lower your repayments will be but you will be charged more interest. Generally speaking, it’s a good idea to pay what you can, when you can, in order to reduce the interest you pay.
How to set up a payment plan with the ATO
If you owe the tax office $100,000.00 or less and are an individual or sole trader, you can log into the ATO portal using your myGov account, select the Tax tab followed by Payments, then select Make payment plan (available for Individuals/sole traders only).
You can also ask your registered tax agent or BAS agent to create an ATO payment plan on your behalf.
If your debt is higher than $100,000, a phone call to the tax office is required to discuss your options. Speak to your tax accountant about the best approach.
ATO payment plans: quick facts
As with anything tax and debt related, there are different conditions and things to know. For
– You may be eligible for an interest-free payment plan, if your business turns over less than $2 million per year (conditions apply)
– You can set up a direct debit for easier manageability
– Your regular installments can be modified or cancelled but you should take action at least two days before the payment date
– You do have the potential to adjust your payment plan or you can ask your tax agent to help you do so.
Need to arrange a payment plan with the ATO?
Businesses all over Australia arrange payment plans with the ATO every day. It is important to work with your tax accountant to ensure you are putting enough money aside to be prepared to pay your tax bill. This will prevent the amount you owe from getting further out of control.
Want support to arrange an ATO payment plan and minimise outstanding tax debt?
Speak to Mobbs & Co today.