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Written by Adam Taylor:

There may be times when cash flow is tight and paying your tax bills on time may be difficult.

In times like these, a payment plan with the Australian Taxation Office (ATO) to pay your debt over instalments may be an option.

A payment plan can be set up online via a myGov account, over the phone or by a registered Tax Agent on your behalf. If a payment plan is required, it is important to continue to maintain all lodgements by their due dates.

A payment plan can be put in place and it will generally attract interest charges which are currently calculated at a rate of 8.70% (October – December 2017). When applying for a payment plan the terms of the arrangement including the payment frequency e.g. weekly/fortnightly/monthly payments, the amount you are wanting to pay per instalment and the duration you would like the payment plan to be put in place for, need to be set out when applying.

Small businesses with less than $2 million turnover, activity statement debt of less than $50,000 and which is less than 12 months old and a good lodgement and payment history may be able to pay their debt off over 12 months interest free.

When negotiating the payment plan the ATO may require you to show that your business is viable and be satisfied before they will put an arrangement in place. Items they will consider are as follows:

  • gross margins
  • cash flow
  • asset/liability position (including working capital)
  • liquidity
  • debtor/creditor position
  • availability of funding.

If the ATO requests that you demonstrate your businesses viability, they will request financial information from you and explanations regarding the need for the payment plan.

Default of a payment plan

If you miss or are late with a payment on your existing payment plan, this will automatically default a payment plan. Not lodging future activity statements and tax returns on time and paying them in full by the due date will also automatically default an existing payment plan.

By defaulting a payment plan, it creates bad payment history and should be avoided where possible as it will make it more difficult to put plans in place in the future if needed.

If you need assistance with setting up payment plans with the ATO please do not hesitate to contact the MGI Adelaide office.

This communication is general in nature and current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Should you wish to discuss any matter raised in this article, please feel free to contact us.