Times are tough for many business owners. With the constant pressure of managing cash flow, meeting operational costs, and keeping your business running smoothly, paying tax bills in full and on time can be a real challenge.
If you’re struggling to meet these financial demands, an Australian Taxation Office (ATO) payment plan might be something you’re considering.
But hold tight. While payment plans are designed to help you spread the costs, they can end up costing you a whole lot more in the long run.
ATO payment plan eligibility
Whether you’re an individual, business owner or sole trader, you may be eligible to set up a payment plan if you’re experiencing financial difficulties.
An ATO payment plan lets you split your tax bill into smaller, manageable instalments spread out over a fixed period of time—either weekly, fortnightly or monthly—until your balance is clear.
Just because you can…
Even if you are eligible for a payment arrangement for your ATO debt, it doesn’t mean it’s a good idea. While they sound tempting, the reality is that, like any type of payment plan, they come with conditions.
Interest is significant
Tax debts on a payment plan will still accumulate general interest charges (GIC), which compound daily.
The ATO currently charges around 13% GIC on outstanding tax debts under payment plans. This is a much higher rate than traditional finance options.
The quicker you pay your debt, the less GIC you’ll pay. But quick payment isn’t always possible.
ATO interest charges no longer tax-deductible from 1 July 2025
Business owners should be aware of a significant change to tax law that will impact how interest charges from the Australian Taxation Office (ATO) are treated.
From 1 July 2025, businesses will no longer be able to claim a tax deduction for ATO interest charges, including both the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC).
This change applies to any GIC or SIC incurred on or after that date, regardless of whether the underlying tax debt relates to earlier income years 1.
Previously, these interest charges were deductible in the year they were incurred, offering some relief to businesses managing tax debts. However, under the new law, this deduction will be denied, meaning affected businesses may face higher tax liabilities moving forward.
It’s important to note:
– Interest charges incurred before 1 July 2025 will still be deductible under the current rules.
– Any remitted GIC or SIC after 1 July 2025 will no longer need to be included as assessable income.
We encourage all clients with existing or potential ATO payment plans to review their arrangements and seek professional advice to understand how this change may affect their tax position.
Strict compliance expectations
The ATO has become increasingly strict with payment plans. Missing even one payment can lead to the arrangement being cancelled and recovery actions initiated. These actions may include:
- Immediate legal action – They may take steps to recover the outstanding debt through legal means, such as issuing garnishee notices or even taking you to court.
- Interest and penalties – If your payment plan is cancelled, the GIC and penalties on the debt can increase, compounding the financial burden.
- Debt collection – In some cases, they may refer your account to external debt collectors, which could affect your business’s credit rating and reputation.
- Loss of payment plan eligibility – If you fail to meet the terms of your payment plan, you may not be eligible for another plan in the future, making it even harder to manage your tax debt going forward.
Reduced flexibility
Once a payment arrangement is in place, the ATO expects your ongoing lodgments to be up to date and paid on time. Falling behind again on your tax obligations may disqualify future arrangements, making it harder to manage future tax debts.
Limited remission of interest and penalties
The ATO is now reluctant to remit GIC or penalties unless exceptional circumstances can be demonstrated, especially if you have a history of non-compliance.
Exceptional circumstances can include situations like personal illness or natural disaster.
Long term consequences
Multiple payment plans or defaults can negatively affect your taxpayer risk profile, which may trigger more frequent ATO reviews or audits.
This increased scrutiny can create unnecessary stress for your business, waste time and potentially expose you to more penalties or interest. It’s important to recognise that repeated defaults may send the wrong message to the ATO, making them less inclined to show leniency in the future.
Explore other finance options
As you can see, ATO payment arrangements aren’t without their strings attached. They’re definitely something to think twice about.
The good news? There are alternative options we’d recommend that can help you manage your tax bill without the unwanted side effects.
Depending on your situation and financial position, it might make sense to explore private finance options or short-term funding solutions.
This could include:
- A lump sum short-term business loan
- A line of credit
- A low-interest overdraft facility
These options often offer lower interest rates compared to the ATO’s GIC, which compounds daily and can add up fast.
Plus, private finance gives you:
- More breathing room to plan your cash flow
- Flexible repayment options based on your business needs
- Greater control without being locked into strict ATO terms
If you do miss a repayment, you might face a fee or need to renegotiate. However, you won’t be staring down the immediate risk of audits, cancelled plans or aggressive recovery actions.
ATO payment plans: a last resort
ATO payment plans can seem helpful, but they’re meant for genuine financial hardship, not routine cashflow management.
They should only be considered as a last resort after exploring all other options, like those above.
If you’re experiencing financial hardship, contact your Maxim advisor or reach out to our team today for a frank chat and professional advice based on your personal circumstances. We can also connect you with turnaround and insolvency specialists.
