For many business owners, setting up a payment plan with the Australian Taxation Office (ATO) is something they’ll face at least once — especially during times of financial pressure. It can feel overwhelming or even intimidating at first, but the process doesn’t have to be stressful.
With the right knowledge and support, you can confidently approach the situation. Understanding how payment plans work, what the ATO expects, and how to avoid common pitfalls can significantly improve your chances of having a plan accepted.
Acting early is key. The sooner you engage with the ATO and take proactive steps, the more options you’ll have and the more control you’ll keep over your financial future.
Understanding ATO tax debt
The Australian Taxation Office isn’t your average creditor. While it’s responsible for collecting taxes to fund public services, it also plays a key role in maintaining a fair business environment in Australia.
That means the ATO takes a balanced approach to collecting debt — it has to be firm but also fair. If one business is allowed to delay or avoid tax obligations without consequence, it puts others at a disadvantage.
Why ATO negotiation feels different
Some business owners expect to negotiate with the ATO like they would with a private lender — bargaining down the debt or pushing back deadlines. But the ATO operates under strict guidelines.
Generally speaking, the ATO won’t reduce core tax debt unless there are extreme circumstances. Payment plans must reflect your actual capacity to repay, and every arrangement is assessed through a compliance and fairness lens.
Can the ATO negotiate at all?
Yes — but within limits. The ATO offers payment plans, may waive penalties, and in very rare cases, might accept a partial payment to finalise the debt (called a debt compromise).
If you’ve been charged a penalty and believe there were circumstances outside of your control, you may be eligible for a remission of penalties. Similarly, if interest has been added to your tax bill and you believe it’s unfair (for example, if the ATO caused delays or you faced serious hardship) you can explore a remission of interest charges. You can find more on the formal process for compromising a tax debt here: Compromise of tax debt.
And in cases of serious financial hardship, you may also request a release from your tax debt.
Common causes of ATO tax debt
Businesses fall into tax debt for many reasons. Common causes include:
- Late payments – Missing BAS, GST, or PAYG due dates.
- Underestimated liabilities – When profits increase but tax planning doesn’t adjust.
- Cash flow pressures – Dipping into tax funds to pay urgent expenses.
- Economic pressures and personal use of business funds – Common for sole traders juggling personal bills. We unpack these situations in more detail in a previous related article on how good businesses get caught out by tax debt.
Implications of unpaid tax debt
ATO tax debt isn’t just a number on a letter — it can affect your business, your personal assets, and your ability to get financing in the future. Some of the more serious implications of unpaid tax debt include the following:
- Interest and penalties add up — The ATO applies General Interest Charges (GIC) daily to overdue debts. These charges compound, which means small debts can grow fast. · View current rates here: ATO GIC rates.
- Legal action isn’t uncommon — If the debt isn’t addressed, the ATO may obtain court orders to issue garnishee notices to your bank, employer, or customers. They also have the authority to serve a Director Penalty Notice (DPN) if you are the director of a company that owns the debt. This makes you personally liable for the company’s debts. Finally, they may initiate legal recovery actions such as court judgments or liquidation.
- It can affect your credit rating — The ATO can report tax debts to credit agencies if they exceed $100,000, are overdue by 90+ days, and you are not in communication with them.
However, there is some good news. Defaults can be removed. If you pay the debt, the ATO can ask for the credit default to be removed.
Eligibility for ATO Payment Plans
ATO payment plans are designed to help you stay on track without overwhelming your finances. You’ll need to meet a few conditions:
- Your tax debt is under $200,000 (for self-service plans).
- All required tax lodgements are up to date.
- You haven’t defaulted on a payment plan in the last year.
- The plan is realistic based on your financial situation.
- In most cases, the term of the payment plan cannot exceed 2 years.
- You can meet your future tax obligations plus your new payment plan.
The ATO may cancel your payment plan if you don’t meet all your obligations, such as lodging BAS and tax returns.
Steps to set up an ATO payment plan
- Work out what you can afford — Use a basic budget or spreadsheet to see what repayment amount fits your cash flow.
- Check for pre-payment requirements —The ATO may ask for an upfront payment (usually around 10–20% of your debt) especially for larger amounts or long-term plans.
- Use the ATO’s Online Estimator — Use the ATO’s Payment Plan Estimator to explore your options and understand interest costs.
- Apply online or by phone — Log in to myGov for self-service plans or call the ATO.
- Individuals: 13 28 65
- Businesses: 13 72 26
- Understand the Payment Plan Terms —Make sure you know how often you’ll need to pay, what the due dates are, and what happens if you miss a payment.
Need help preparing your proposal or not sure what the ATO will accept? It’s wise to speak to someone experienced, such as your accountant.
Alternatives if a payment plan isn’t feasible
Not every situation fits a standard ATO plan. In that case, some broader options include:
- Mortgage refinancing and using another loan to pay the tax debt balance.
- Short-term business funding to handle immediate tax obligations.
- Closing or formally winding up your business (via liquidation) if it’s no longer viable.
Simple key takeaways
- Review the ATO’s payment plan requirements before applying.
- Understand what you can realistically afford — overcommitting to a payment plan you can’t maintain may cause it to default and be cancelled.
- Work with a reputable bookkeeper or accountant to keep on top of BAS, income tax returns, and other required lodgements — ongoing compliance is essential.
- Set aside working capital to handle the normal ups and downs of business turnover — this will help you stay on track with your obligations and avoid falling behind again.
- Act early and stay in communication with the ATO — the sooner you engage, the more options are available.
When in doubt, seek advice tailored to your business and financial situation.
“The opinions expressed by BizWitty Contributors are their own, not those of BizCover and should not be relied upon in place of appropriate professional advice. Please read our full disclaimer."
