Getting on Top of Tax Debt

Although most Aussies pay their tax bill on time, some can’t – or just won’t – pay what they owe.

In the 2017-18 financial year, the ATO collected over $500 billion in liabilities from Australian taxpayers, with 89.5 per cent of us paying on time and 95.9 per cent paying within 90 days of the due date on their tax return.

This left 4.1 per cent of taxpayers with outstanding tax debts totalling $23.7 billion. Of this, $15.1 billion were tax debts owed by small businesses. That's a lot of unpaid tax.

Getting taxpayers to pay

So what happens if you don't pay your tax debts?

If you can't pay your tax bill on time, it's important not to panic. The ATO is willing to help, but you must continue lodging your tax returns and activity statements on time, even if you can't pay on the due date.

Lodging on time helps avoid a penalty for late lodgement and shows the ATO you are aware of your obligations and are doing your best to meet them.

What action the ATO decides to take if you have an unpaid tax debt depends on your circumstances, past behaviour and lodgement and payment history. If you have a good tax payment history or are in serious hardship, you are likely to be treated differently by the ATO than if you have deliberately set out to avoid paying your tax, or regularly fail to pay your tax debts.

In some circumstances, an individual taxpayer may be released from a tax debt. This usually only occurs if you are experiencing serious hardship.

Paying by instalments

If you cannot pay your tax bill by the due date, you may be allowed to set up a payment plan. The ATO accepts short-term cash flow problems sometimes prevent taxpayers from paying on time. In 2017-18, it granted 1.1 million payment plans, with 790,000 of these being for small businesses.

Even if you establish a payment plan, interest still accrues on your unpaid tax debt. The ATO automatically begins charging a daily general interest charge (GIC) on tax debts and the debt continues growing until it is paid. During the July to September 2019 quarter, the GIC annual rate is 8.54 per cent.

Small businesses with an activity statement debt may be able to pay off this type of debt interest-free over 12 months if they meet certain eligibility criteria.

What will the ATO do if I don't pay?

Aside from charging interest, if you don't pay, the ATO will begin using your future tax refunds or credits to reduce your tax debt. It will also use these amounts to pay any debts you owe to other government agencies, such as overdue child support.

Routine income tax and activity statement debts are often referred to external debt collection agencies for collection on behalf of the ATO. Tax debts that are being formally disputed are not referred.

Collection agencies are required to notify you in writing before contacting you to negotiate payment of your debt.

Taking stronger action

If you do not reach an agreement with the collection agency, the debt is returned to the ATO. It may then take 'stronger action', such as issuing a garnishee notice or director penalty notice. Or it may start insolvency proceedings.

The ATO uses stronger actions with people who are unwilling to work with it, who repeatedly default on agreed payment plans, or who do not take steps to resolve their situation. If you are audited and deliberate avoidance is found, or non-payment continues, the ATO is also likely to use these harsher powers.

Garnishee notices require an employer, bank or trade debtor to pay your money directly to the ATO to reduce your tax debt. In 2017-18, garnishee notices were issued in 1.2 per cent of debt cases.

The ATO may also file a claim or summons, which may result in you receiving a bankruptcy notice, or a statutory demand and application to wind up your company. This occurred in 0.04 per cent of debt cases in 2017-18.

Don't ignore a tax debt

Communication is essential when it comes to tackling tax debts. It's also important to act immediately and not shove the letter from the ATO into a drawer hoping the problem will go away, as your interest bill increases daily.

The first step in getting on top of the situation is to contact the ATO or make an appointment with us to discuss your financial position and work out possible ways to pay your tax debt.

We can also talk to the ATO on your behalf about your options when it comes to repaying or managing your tax debt with a payment plan.

If you would like help managing your tax obligations, call us today.


What are the ATO's options if I have a tax debt?
Prevention and support - 850,000* pre due date SMS sent
  • Communication and education
  • Pre due date SMS
  • Payment plans
Early action - 2.1 million* reminder letters sent
  • Post due date SMS
  • Reminder letters
  • Pre referral to external debt collection agency warning letters
  • Phone call from the ATO
  • External debt collection agency
  • Payment plans
  • Release from payment under serious hardship
Firmer action - 51,000* garnishees issued
  • Firmer action warning letter
  • Garnishee
  • Director penalty notice
  • Payment plans
  • Release from payment under serious hardship
Stronger action - 1,800* bankruptcies and company wind ups
  • Notice of intended legal action
  • Summons
  • Judgment
  • Bankruptcy notice
  • Creditor's petition
  • Statutory demand
  • Application for winding up
  • Payment plans
  • Release from payment under serious hardship

* All statistics relate to 2017-18 financial year. Source: ATO