Uh-Oh owing
money to the ATO?

The ATO can pursue a recovery action.

What happens when you owe the ATO money?

The ATO has the right to recover the debt as an unsecured creditor of the taxpayer. The ATO has certain statutory powers available to it in debt recovery. These powers include the ability to issue a Garnishee Notice on a taxpayer’s bank account or debtor and the ability to withhold tax refunds that would otherwise be available and offset them against the tax debt owed. Other than this, this ATO is simply an unsecured creditor with the same rights as any other creditor.

The ATO can pursue recovery action for debts owed that could ultimately lead to the liquidation of a company or the bankruptcy of a personal taxpayer. The ATO generally will not settle or compromise debts. However, in some cases they may be prepared to waive interest and penalties that have accrued. It is important to note that if the ATO remains unpaid at some point it is likely that the ATO will commence legal action for the recovery of the debt owed.

  • Can you pay off an ATO debt? How long does the ATO give you to pay a tax debt?

    The ATO will consider payment plans for past due debts and it may be possible to pay a tax debt off over a longer period of time. How long the ATO will give you to pay a tax debt will depend on the taxpayer’s history and the amounts involved. It is not uncommon for the ATO to agree to instalments for a period of time, say six months. After the initial payment period the payment plan will be reviewed and a new payment amount and term set.

    The issue can be that the ATO escalates the amount they require each month to continue a payment arrangement. Further, for longer term payment plans the ATO may require a second mortgage over property or some other security for payment.

  • Are there alternatives to ATO payment plans?

    The only real alternatives for ATO payment plans are to raise additional finance to pay the debt out in full or consider an insolvency based strategy. Insolvency, such as liquidation or personal bankruptcy, will deal with any outstanding tax debt at that time. In many cases it may be possible to restructure a business, legally and commercially, and bring finality to the outstanding tax debt of a company.

  • Can you go to jail for not paying tax in Australia?

    No – you cannot go to jail if you are unable to pay your taxes in Australia. If the issue is simply that you cannot afford to pay, you will not be imprisoned. However, tax fraud, also known as tax evasion, is a serious crime with the maximum penalty including a term of imprisonment. This is fraud though, which involves the illegal abuse of the tax system, rather than a simple inability to pay.

Did You Know?

Phoenixing is another name for business restructure.

Read more about business restructures and when this can be an option for you.


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