ATO payment plans: a guide for small businesses

What is an ATO payment plan?

An ATO payment plan is an arrangement to pay an outstanding tax debt in smaller amounts over time instead of in one lump sum. You agree on an instalment amount and frequency, and as long as you keep to the plan, the ATO generally won't take stronger recovery action on that debt.

How to set up a payment plan with the ATO

1. Work out what you can realistically pay each week, fortnight or month before you contact the ATO.
2. Lodge any outstanding BAS or returns first. The ATO usually requires your lodgments to be up to date before agreeing to a plan.
3. Set up the plan through your ATO online services (via myGov for sole traders, or Online services for business), or call the ATO. Your tax agent or accountant can also arrange one on your behalf.
4. Stick to the schedule. Missing instalments can default the plan, and the full debt can become payable again.

Does the ATO charge interest on payment plans?

Yes. The ATO applies the General Interest Charge (GIC) to unpaid tax, including while a payment plan is running. The GIC compounds daily, so the longer the debt runs, the more it costs. Two things matter for your business:

• GIC on an ATO payment plan is generally not tax-deductible for the business in the way interest on a business loan can be.
• An unpaid ATO debt can affect your credit position and your ability to borrow elsewhere.

Are there alternatives to an ATO payment plan?

For many businesses, the alternative is to pay the ATO in full and spread the cost through business funding instead. With PayMyTax, your tax bill is paid to the ATO, and you repay the funded amount in smaller weekly instalments. Interest on business borrowing connected with an income-producing business is generally tax-deductible, while ATO interest isn't. Confirm the treatment for your situation with your tax adviser.