We all strive to meet our tax obligations on time. However, it’s not uncommon for individuals and businesses to experience difficulty in meeting their tax obligations at least once. While people who deliberately evade tax are more prominently featured on the news, the majority of unpaid tax is either accidental or circumstantial.
The ATO, however, is less interested in why you can’t pay your taxes, and instead interested in how you’re going to pay them. If you can’t pay your tax obligations, here is what will happen next, and what you can do to clear tax debt as soon as possible.
If you realise before the due date that you are unlikely to pay on time, it’s always worth contacting the ATO to discuss what you can do to pay it off with as little financial penalty as possible.
Typically, however, the ATO will connect with you via text, letter, myGov or phone call to chase up your tax debt after, or at the onset, of the due date. Here they will let you know the details of your debt and the options available to you to pay it. It might seem scary to receive the information, but it’s only going to be beneficial to you to fully understand what you need to do and work out a clear path to do it. Consider this information as helpful and valuable, instead of dire and something to avoid.
From the due date, if unpaid, your tax amount will incur a General Interest Charge (GIC) at a rate calculated on a daily compounding basis and added to your tax account periodically. The GIC is revised quarterly. The interest is applied until the debt is paid completely.
If your personal or business funds will not be available to pay the debt, you can opt to pay via offsetting. That is, if you are due a tax refund or credit, the ATO will take the owing amount directly from it (however, they are also required to pay any outstanding debts owed to Australian Government agencies), and you will be credited any remaining balance.
This is the more desired method of payment as it means you can pay your debt more quickly and avoid further interest charges.
Certainly, the quicker you can pay it off, the better and this is the first priority that we suggest.
Second to that is contacting the ATO to apply for a remit to reduce or cancel your interest rate; there is no guarantee that your application will be successful, however, as it is decided on a case-by-case basis.
The best thing you can do is monitor your incomings and outgoings, projections and also have a healthy contingency sum to assist with being stuck and unable to pay your tax obligations.
It’s important to do financial projections of at least 12 months into the future, calculate your likely net profit to have a foundational guess on what your tax will be. Putting that amount into a tax provision account and transferring to that account each month will offer you sound peace of mind when tax time comes. Additionally, you will get a better understanding of where you are money-wise, generally.
If you need assistance with tax projections, managing your tax for this financial year, and next, contact Maxim’s knowledgeable and understanding team. We are here to help guide you through the best practices that will ensure you’re in a better financial position when tax time rolls around.