Can I Pay My Tax in Instalments

If left unpaid, a $10,000 tax bill could cost you around $571 in interest after six months, based on the Australian Taxation Office’s (ATO) current interest rate of 11.42% per year. Thankfully, the ATO lets you set up flexible payment plans for tax debts that are less than $200,000. If you owe more than $200,000 or are unable to set up a payment plan online, you will need to contact the ATO directly for assistance.

The ATO’s payment plans allow you to spread your payments across 24 months. If you have a clean payment history, you might even qualify for interest-free periods. Setting up a payment plan protects you from extra penalties and legal issues while you continue to run your business.

The ATO gives you several ways to manage your tax obligations. You can make better decisions about tax payments by knowing these options and how they match your financial situation.

Tax payment plans help people manage their tax debts based on their financial situation. You can pick from several options that best match your needs.

1. Short-term arrangements (under 3 months)

Quick resolution plans work best when you can pay off your debt fast. The instalments might be higher, but you get more flexibility. Land tax payments come with a nice bonus—a 0.5% discount if you pay everything within 60 days of getting your assessment notice.

2. Standard payment plans

These plans give you a structured way to clear your debt. Businesses owing less than $200,000 can set up automatic payments through online services. Your plan could run anywhere from six months to two years, based on how much you owe and your payment track record.

You can choose to pay:

• Weekly instalments
• Fortnightly payments
• Monthly contributions

Remember that General Interest Charges (GIC) will keep adding up on what you still owe until you clear the entire debt.

3. Interest-free arrangements

Small businesses can get interest-free payment plans if they meet certain requirements. Your business will need to:

• Have an annual turnover of less than $2 million
• Have recent amounts owed from an activity statement of $50,000 or less that have been overdue for up to 12 months
• Have a good payment and lodgment history, including:
• no more than one payment plan default within the last 12 months
• no outstanding activity statement lodgments
• Prove it cannot obtain finance (such as a loan) through normal business channels
• Demonstrate ongoing viability

Interest-free payment plans let you pay your debt over 12 months through direct debit. Sometimes, even if you get a letter about interest charges, you won’t have to pay them as long as you stick to your payment schedule.

The ATO’s online payment plan estimator can help you calculate manageable instalments before setting up a payment arrangement. This tool shows how quickly you can clear your tax debt and understand interest charges. Tax credits or refunds automatically reduce your outstanding debt, but they don’t replace your scheduled instalment payments.

Setting up your tax payment plan can be handled in three ways:

• Online services via myGov
• Self-help phone service
• Direct contact with ATO

You’ll need to pick your preferred payment frequency (weekly, fortnightly or monthly) and set up a payment method. Direct debit arrangements need to be set up at least three business days before the first instalment date.

Required documents

Your debt amount and previous payment history determine what documents you need. Standard applications with debts under $200,000 typically require:

• Your Tax File Number (TFN) or Australian Business Number (ABN)
• Details of amount payable
• Bank account information for direct debit setup

Individuals with larger debts or cases with previous defaults will need to submit more complete financial information, such as financial statements, profit and loss statements, cash flow forecasts and more.

Once your payment plan has been approved, the ATO will send confirmation. This will outline specific terms and your instalment schedule.

Note that any tax credits or refunds you receive during the payment plan period will automatically offset against your outstanding debt.

Effectively managing your tax payment plan is vital for ensuring that you make your payments on time. Luckily, the ATO has tools to help you stick to your payment schedule.

Direct debit arrangements are the quickest way to handle your tax payment plan instalments. Just remember to set up direct debit payments at least three business days before your first instalment date.

Individual or sole trader account holders can access their payment details through ATO online services.

Missing a payment

The ATO will send you a letter if you miss a scheduled payment or don’t meet another tax obligation on time.

myGov users get these notifications in their myGov inbox. Your tax agent will receive the arrears letter if you’ve asked for correspondence to go to them.

The ATO’s payment plan estimator is a great way to get help if you run a business. It helps calculate manageable instalments and shows how quickly you can pay off your tax debt. This tool gives you an explanation about interest charges and helps you make smart decisions about your payment schedule.

Tax payment plans are a great way for your business to stay compliant and protect its financial stability. The process of relieving your tax debt, however, can be tricky. 

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.

Contact us to learn more or to book a confidential consultation about your tax debt.