PAYMENT PLANS
Big scary tax debt?
You might want to set up a payment plan with the ATO (and also check out our blog on debts).
The ATO offers payment plans that will help you pay your tax bill, especially if you are currently under financial hardship. You may also be able to set up a payment plan if you cannot pay your tax bill in full and on time. This will help you get back on track while managing to pay your tax debt via instalments where you will pay an agreed amount either weekly, fortnightly or monthly (maximum payment plan is 24 months).
You may ask, so what’s the catch?
The thing is like any other debt, the payment plan is also subject to interest charges. The current General interest charge (GIC) rate is 11.38% (January – March 2024). Though it is still subject to interest charges, payment plans are better than paying interest charges plus penalties when there is failure to meet a tax obligation on time.
For example (calculated using the Payment plan estimator):
You have a tax bill of $10,000 payable in monthly instalments. Estimation based on general interest charge (GIC) rate of 11.38%. The interest amount may vary depending on the GIC rate or the date you make payments.
Total estimate including general interest charge (GIC) is $10,574.68
- You need to make your upfront payment of $1,000.00, which is the minimum 10% upfront payment. This is payable within 7 business days from the start date of your payment plan.
- Remaining debt is payable for 13 monthly repayments of $687.40 and a final payment of $637.86.
- Over the course of the payment plan, built into those repayments is an additional estimated interest of $574.68.
The other catch?
The other catch is all future lodgements and bills payable to the ATO are due by their usual due date. They don’t just get added to the balance of the payment plan. You pay the new ones as and when they fall due.
Here is the criteria if you are considering to start a payment plan:
- The amount you owe is between $1 and $200,000.
- You don’t already have an active payment plan. ATO only allows one payment plan, but you may modify and update it to accommodate your next tax bill.
- Your tax account is not currently on hold, no ongoing lodging dispute.
Once you have decided that a payment plan is the best way to settle your tax bill, you can set up your payment plan via ATO’s Online Services (in MyGov) or call them. Your accountant can also help you with this.
If you are part of the The Real Thiel community, we will set up a payment plan that is suitable for your current situation with the following considerations:
- reason as to why you can't pay the debt in full
- your income and expenses (for sole trader, business income and expense over the last 3 months)
- your assets
- your bank balances, creditors and debtors
- cashflow information (this will prove if business is seasonal and subject to fluctuating income)
How and when to pay
Once you successfully set up your payment plan, you will be given a schedule of your instalment details: amount and the due date. The ideal way to pay your scheduled instalments is to set up a direct debit. This will help you pay on time and prevent your payment plan from defaulting. If direct debit is not possible, you may also pay via Bpay, Government EasyPay, pay at the post office (cash, EFTPOS,or cheque), and international money remitters.
Given the other options to pay, you’ll need more monitoring of your due date. You can use your calendar to keep track of the payment schedule or set up SMS reminders.
We suggest sending the money a few days before so that it lands with the ATO by the due date.
What happens if you missed a payment date
If you miss a due date, your payment plan will have an arrear status first before it defaults. The ATO may send a letter to you or to your tax agent (if you have chosen them to receive your correspondence) via MyGOV stating the actions you need to follow to keep your payment plan.
Usually, when you only miss one due date, you can pay the missed instalment and the current one on the next due date, but you need to confirm it first with ATO if they haven’t tagged your payment plan yet as default.
Important: If your payment plan has defaulted, the balance becomes immediately due in full, and your remaining balance will incur a daily interest charge until it is settled. The interest expense could be deducted in your tax return for the corresponding year. It is important to avoid it from defaulting as it may affect your next payment plan application.
The ATO only allows one payment plan.
Does it mean that if I have another tax bill I need to pay it now in full?
The answer is no. Though ATO only allows one payment plan, you can modify it and add your next tax bill. You have to contact the ATO for your payment plan modification as new debts are not automatically added to your payment plan. You can modify your payment plan at least 2 days before the due date. Generally, you can modify it online, but if you plan on extending the payment period longer than 24 months you need to contact the ATO.
You can update the instalment amounts of your payment plan through ATO’s online services (Payment plans 2023):
- individuals and sole traders can use ATO online services
- businesses can use Online services for business on the Payment Plan page
- tax and BAS agents can refer to the Online services for agents user guide for instructions on how to modify an instalment in Online services for agents. Tax and BAS agents cannot modify the payment plan or instalment schedule if the payment method is direct debit via credit or debit card. Only the card holder can do this.
We hope this article will help you in deciding whether to set up a payment plan. If you need more help, you may contact us for a consultation for the best plan for you.
