The Australian Taxation Office (ATO) is one of the country’s most powerful creditors. As a government organisation, the ATO also has powers that other creditors don’t. This can put you in an uncomfortable position if you or your company owes taxes.
The good news is that the ATO has discretion to engage with debtors. That can allow you to negotiate payment plans and explore other options for full or partial ATO debt forgiveness.
The ATO only provides debt forgiveness in limited circumstances. In this article, we’ll discuss debt forgiveness and whether it’s available to you.
What is ATO Debt Forgiveness?
ATO debt forgiveness is the term for when the ATO forgives some (or all) of a tax debt that’s owed by an individual or company. This is called being “released” from your debts.
The ATO only provides debt forgiveness in two circumstances:
- The ATO may release an individual from some (or all) of their tax debt if paying the debt would cause financial hardship.
- The ATO may release a company from some (or all) of the penalties and interest relating to a tax debt. The ATO does not have the power to forgive the primary tax debt.
While the ATO does not have the power to forgive a company’s primary tax debt during negotiations, it does have the power to forgive debt during formal insolvency procedures, such as Administration or Small Business Restructuring.
Debt forgiveness is relatively rare. Contact an adviser to discuss formal insolvency options if you are struggling with personal or company tax debt.
What is a “Release” From Tax Debt?
“Release” is the formal term for forgiving a primary tax debt, or the penalties and interest related to the debt. When you are released from a debt, the debt ceases to exist and can no longer be recovered.
What is a “Waiver” of Your Tax Debt?
The Finance Minister has the power to “waive” a primary tax debt under the Public Governance, Performance and Accountability Act 2013. The ATO does not have the power to waive or modify primary tax debt that’s owed to the Commonwealth. A waiver of debt may be granted to an individual or organisation.
Waivers are rare. They are only granted if all other options have been considered and a waiver is the most appropriate solution.
Can I Apply to the ATO for Tax Debt Forgiveness?
You can apply for tax debt forgiveness if you are an individual or the Trustee of a deceased estate. The ATO does not have the power to forgive primary company tax debts. See below for detail:
Individuals
Individual taxpayers can apply to the ATO for release from tax debts of $10,000 or more. If the ATO finds that collecting your tax debt will cause financial hardship, it has the option of releasing you from some (or all) of the primary tax debt.
Collecting a tax debt may cause “financial hardship” if making payments leaves you unable to afford:
- Food
- Accommodation
- Medical expenses
- Education
- Clothing
If financial hardship doesn’t apply, you may also be able to negotiate a reduction in the total amount of your debt and/or a payment plan that suits your financial situation.The ATO can also forgive personal tax debts under a Debt Agreement or Personal Insolvency Agreement (PIA).
Organisations
Companies and other organisations cannot apply for tax debt forgiveness. You may be able to negotiate with the ATO to reduce the penalties and interest related to the primary tax debt.
The ATO only has the power to forgive company tax debt through formal insolvency appointments, including Administration and Small Business Restructuring.
The ATO is an active participant in formal insolvency proceedings. These processes are administered by experienced professionals who can provide advice and represent your company when dealing with the ATO.
As such, the ATO is inclined to accept the advice of a Registered Trustee on your company’s behalf, and may be willing to forgive primary tax debts and/or the penalties and interest related to the debt.
Company Directors
As a Director, you can apply to the ATO to request forgiveness for penalties and interest relating to your company’s tax debts, although this is normally handled by an accountant or adviser.
In certain situations, Directors can be made personally liable for company tax debts relating to:
- Pay As You Go (PAYG) withholding
- Super Guarantee Charge (SGC)
- Goods and Services Tax (GST)
Directors cannot apply to be released from personal liability for these debts. This is because Directors are made liable for a penalty that is equal to the debt, not the debt itself.
If you are made personally liable for a company tax debt and you are unable to pay the penalty, you may need to consider personal insolvency to resolve the debt.
Which Tax Debts Can Be Forgiven?
The ATO can only consider forgiveness for certain types of tax debts, penalties and interest. See the table below for more information:
| Eligible Tax Debts | Ineligible Tax Debts |
| Income tax | Goods and Services Tax (GST) |
| PAYG instalments | PAYG withholding |
| Fringe Benefits Tax (FBT) and FBT instalments | Excess Contribution Tax (ECT) |
| Medicare levy and Medicare levy surcharge | Division 293 liabilities |
| Taxes on dividends, interest and royalties | Super Guarantee Charge (SGC) |
| Mining withholding tax | Director Penalty Notices (DPNs) |
| Managed investment trust withholding tax | |
| Penalties and interest relating to these debts |
Find Relief From Tax Debts With Advice From Business Savers!
Tax debts can be overwhelming. Whether it’s a personal debt or money that’s owed by your company, dealing with the ATO is an uncomfortable position to be in.
If you are struggling with tax debt, it’s time to talk to the advisers at Business Savers.
Business Savers is a team of Registered Liquidators and Registered Trustees with extensive experience in dealing with tax debts and the ATO. We can assess your situation, make recommendations and represent you in dealings with the ATO.
We are committed to finding the best solution for your situation. Depending on the circumstances, we can help you negotiate with the ATO, apply for tax debt forgiveness, or explore formal insolvency proceedings.
Contact us to learn more or to book a confidential consultation about your tax debt.
Recent Comments