ATO Debt – What You Need to Know When You Owe (2023)

For many businesses, ATO debt can be a serious issue. At the end of the 2020 financial year, small-to medium-businesses owed around $21 billion to the ATO, up from $13 billion in 2018.

Change in legislation means unpaid business tax is reported to credit agencies

ATO debt can now be reported on credit reports. In 2018, legislation was passed that empowered the Australian Tax Office to start reporting unpaid business tax debts to credit reporting agencies, making it possible for such information to be included in business credit reports. Under the new legislation, the ATO can report Australian businesses to the ATO that owe more than $100,000 that is more than 90 days overdue. While this has caused concern for many, some people believe that it levels the playing field by creating greater transparency about the financial health of businesses.

Income tax for individuals and sole traders

If you operate as a sole trader, you can quickly find out what you owe. As a sole trader, you can use your myGov account, which is linked to the ATO, to check for any outstanding balance and due dates for payments. If you don’t have a myGov account, you can create one.

You will also be informed about the amount you owe with a Notice of Assessment after lodging your tax return. The notice of assessment will show how much you owe, when the payment is due and your payment reference number.

When you earn income from a business, you might be required to make PAYG instalments. Based on income from the previous year, the ATO will notify what you owe in Pay As You Go (PAYG) instalments and how often you need to pay your ATO debt.

(Video) Do NOT Pay Collections Agencies | Debt Collectors EXPOSED

Business income tax debt

Business owners can find out what they owe by logging in to the ATO Business Portal. When you log in, you can find out when you need to lodge and pay your ATO debt.

If you are not able to use the business portal, you can check your latest income tax assessment or call the ATO on 13 28 66. Your Notice of Assessment will show the amount you owe, the payment due date and your payment reference number.

Disagreeing with your tax assessment

When you disagree with your tax assessment, you can dispute it with ATO. However, you are still required to pay the outstanding amount by the due date, unless you have made an arrangement with the ATO through a deferral or 50:50 arrangement. Any amounts owed to the ATO that are overdue incur interest. If the dispute is resolved in your favour, the ATO will refund interest on overpayments.

When seeking a deferral, you can write to the ATO with the reasons why you think the assessment is incorrect. The ATO may agree to defer recovery action until the dispute is resolved if you have a good payment history with the ATO. Interest will still apply from the due date on the amount that is payable when the dispute is resolved.

Another option offered by the ATO is what’s called a 50:50 arrangement, under which you pay 50% of the amount in dispute plus any other tax debts outstanding. You are also required to provide any information needed to resolve the dispute but you are allowed to defer paying the remaining amount until the dispute is resolved.

If the ATO determines that your objection isn’t correct, you will only be charged 50% of the interest that has accrued from the time you made the 50% payment.

(Video) I Owe The IRS $14,000 And I'm Freaking Out

What happens when you don’t pay the ATO debt you owe?

If you don’t pay your tax debt on time, the ATO will automatically add a general interest charge (GIC) to the amount you owe, and the ATO debt will continue to increase while it’s unpaid. This interest amount is calculated daily on the amount outstanding on a compounding basis and added periodically to your account.

In some cases, the ATO may reduce or cancel the interest on your debt. Before deciding on this, you are required to explain why it’s fair and reasonable, given your circumstances, to have the interest reduced or cancelled.

The ATO uses refund and credits owed to you to pay your ATO debt

In cases where you have a refund or credit owed to you, and you have new tax debt, the ATO will use the refund or credit to pay off your debt. The ATO is also required to use the funds to pay off debts to other government agencies, such as child support payments to the Department of Human Services. Once all debts have been paid, you receive the balance remaining. In cases where a person owing tax is experiencing serious financial hardship, the ATO may pay the refund to them and not use it for other debts to the government.

(Video) Owe IRS Tax Debt, WHAT HAPPENS NEXT, This is How IRS Will Close Your Case, There Are 3 Ways

Steps the ATO Takes When You Don’t Pay Your ATO Debt

The ATO follows several steps when a debt is not paid. We will briefly look at each of these in order of severity.

Turning your ATO debt over to external debt collection agencies.

The ATO uses external debt collection agencies to collect routine income tax, activity statement and superannuation debts, up to $250,000. According to the ATO website, referral of your ATO debt to an external collection agency will not affect your credit rating. The ATO also notes that:

  • It doesn’t ‘sell’ your ATO debt, as the debt remains payable to the ATO
  • Debt collections agencies are not paid commissions
  • It ensures that debt collection agencies provide a professional service
  • It requires debt collection agency staff to comply with the guidelines that apply to ATO staff
  • Debt collection agencies are required to meet all government security and privacy requirements.

An external debt collection agency will notify you in writing before calling you or your authorised contact. If you don’t reply by the date outlined in the letter, the debt collection agency will attempt to contact you by phone.

If you can’t reach an agreement about paying your ATO debt.

If you are not able to pay or reach an agreement about paying your debt, the next steps taken by the ATO can include:

  • Garnishee Notices – with a Garnishee Notice, the ATO can get a person or business that holds money for you (such as your bank), or will hold money for you in the future, to pay them directly to reduce your debt.
  • Director Penalty Notice – with a Director Penalty Notice, a director can incur penalties equal to the amount of the PAYG withholding liabilities and superannuation guarantee charges that have not been paid. The ATO can issue the Director Penalty Notice which makes it possible to start legal proceedings to recover the penalty.

If the ATO is unsuccessful in these attempts at debt collection, it can take other steps, including:

  • Filing a claim or summons
  • Filing a creditor’s petition to make you bankrupt
  • Issuing a statutory demand requiring a company to pay its entire debt or enter a payment plan with 21 days
  • Taking action to wind up a company if it hasn’t paid its debts or entered into a payment plan.

If you are in business, staying on top of your tax debt can be challenging. ATO payment plans are not always suitable for SMEs.

One option is to refinance your tax debt. Moula specialises in lending to SMEs and offers flexible finance options. We have helped many businesses gain control over their tax debt and cash flow.

(Video) What Are Your Options If You Owe IRS Tax Debt, Former IRS Agent Explains

If you are thinking about refinancing your tax debt, it’s easy to apply online with Moula. Or if you would like to speak with one of our team members, give us a call on 1800288320.

Good read, right?

Get more insights to grow your business from our newsletter.

Author: Team @ Moula

Business content for Australian SMEs. Sharing guides, growth hacks, and expert tips on finance, sales and marketing, and tech.

(Video) Can the ATO re-raise a tax debt that it has previously written off?

FAQs

What happens if you owe tax Australia? ›

If you don't pay your tax debt on time, the ATO will automatically add a general interest charge (GIC) to the amount you owe, and the ATO debt will continue to increase while it's unpaid. This interest amount is calculated daily on the amount outstanding on a compounding basis and added periodically to your account.

How long do you have to pay a tax debt Australia? ›

ATO Payment plan terms generally are no longer than 2 years. However, the ATO does have some discretion for increased plan terms in exceptional circumstances. Although, the circumstances to obtain a plan in excess of two years are very few.

What does it mean when it says amount owing to ATO? ›

If you have been earning income from a sole trader business (e.g. ride sharing) and you have not been making pay as you go (PAYG) instalments, you may owe money to the ATO at the end of the year for your income tax. If this is the case, you will have to make payment by the due date to avoid penalties.

What happens when you have an ATO debt? ›

If you have a debt with us and you're due to receive a refund or credit such as from an earlier tax return or activity statement, we're required by law to use the refund or credit to reduce your debt. This is what we call offsetting.

How do I pay off my Australian tax debt? ›

Individuals and sole traders can adjust their payment plans through ATO online services. Businesses can view or update their plan through Online services for business – on the 'Payment Plan' page. Tax and BAS agents will be able to amend payment plans through Online services for agents.

How do you negotiate tax debt? ›

Apply With the New Form 656

You must use the April 2022 version of Form 656-B, Offer in Compromise BookletPDF. Before you apply, you must make federal tax deposits for the current and past 2 quarters. An offer in compromise allows you to settle your tax debt for less than the full amount you owe.

Can ATO put you in jail? ›

In Australia, you can go to jail for lodging incorrect tax returns or incorrect business activity statements with the Australian Taxation Office (ATO). Tax fraud is a serious criminal offence that carries a maximum penalty of 10 years imprisonment.

Will the ATO forgive a debt? ›

Commercial debt forgiveness

A debt is forgiven under section 245-35 of the ITAA 1997 when a debtor is released or waived from their obligation to pay the debt or the period within which the creditor is entitled to sue for recovery of the debt ends (section 245-35 of the ITAA 1997).

Can the ATO refuse a payment plan? ›

The ATO will often enter into payment arrangements to allow debts to be able to be paid overtime. However, sometimes they will refuse a payment arrangement because: The proposed payment arrangement is for too long a period; or. The taxpayer has a poor compliance history; or.

Does ATO debt affect credit rating? ›

We will not report your debt information to credit reporting bureaus (CRBs) if you're already engaged with us to manage your tax debts. We may report your business tax debt if you meet the following criteria: You have an Australian business number (ABN) and are not an excluded entity.

What happens if you owe tax money? ›

Whether you owe back taxes or current taxes, you may be hit with significant penalties and interest accruals over time if you don't pay. The failure to pay penalty starts at 0.5% of your balance due per month (capped at 25% of the back taxes you owe).

How long do you have to pay owing tax? ›

Specifically, two years for eligible individuals and small businesses and four years for other taxpayers, from the day that the notice of assessment is issued. Note however that even though the tax assessment in question is in dispute, you are still expected to pay the outstanding tax amount by the due date.

Does tax debt go away? ›

In general, the Internal Revenue Service (IRS) has 10 years to collect unpaid tax debt. After that, the debt is wiped clean from its books and the IRS writes it off. This is called the 10 Year Statute of Limitations. It is not in the financial interest of the IRS to make this statute widely known.

What happens if you default on ATO payment plan? ›

If your payment arrangement defaults, then the ATO can use one of its many debt collection powers against you. This can include issuing a garnishee notice to your bank, or serving you with papers to try to wind up your company or make you bankrupt. You can read more about the ATO's debt collection powers here.

Can you negotiate with the ATO? ›

Well, I can tell you this – the ATO will not negotiate a tax debt on a commercial basis. You can't simply say 'I can pay you 80% of my tax debt right now, otherwise you can chase me for years' and expect the ATO to accept this. It isn't allowed to make a deal like this.

Can the ATO take you to court? ›

For example, even if you have lodged an objection or you are appealing an objection decision in the Administrative Appeals Tribunal (AAT) or Federal Court, the ATO can still pursue you for the tax debt through the courts, even if you are challenging their basis for taxing you.

What happens if I cant pay my tax bill? ›

It's important to contact HMRC if you're going to struggle to pay your tax bill. If you don't pay it on time, you're likely to end up paying interest and fines on the outstanding amount. HMRC might also: collect it straight from your earnings or pension.

How can I get my tax debt forgiven? ›

IRS debt relief is for those with a debt of $50,000 or less. Tax debt forgiveness is available if your solo income is below $100,000, or $200,000 for married couples. You can also apply for the IRS debt forgiveness program if you're self-employed and have experienced at least a 25% loss of income.

Is it worth using a tax relief company? ›

Hiring a tax debt relief company can be an answer. It may not be the right answer for everyone, but if you're in trouble with the IRS and have no idea what to do, it's worth considering. If you're wondering whether tax debt relief companies are legit, here's some good news: some of them are.

What is tax forgiveness? ›

Tax forgiveness is a credit that allows eligible taxpayers to reduce all or part of their Pennsylvania personal income tax liability. Tax forgiveness: Provides a reduction in tax liability, and. Forgives some taxpayers of their liabilities even if they have not paid their Pennsylvania personal income tax.

Does the ATO investigate? ›

ATO Audits. Suppose that the ATO does not satisfy itself with the risks identified in you or your business's tax affairs during the review process. Then, it may escalate its investigations into a formal audit. Most audits are escalated from a review.

How far back can ATO investigate? ›

two years for most individuals and small businesses. two years for most medium businesses (see note 2) four years for all other taxpayers (see note 3).

What powers do the ATO have? ›

When using our access powers, we are authorised to enter and remain on any land, premises or place and have full and free access to books, documents, goods or other property. We can make copies of documents for our records, but cannot seize or remove your documents without your consent.

Can I pay my ATO bill in installments? ›

In times like these, a payment plan with the Australian Taxation Office (ATO) to pay your debt over instalments may be an option. A payment plan can be set up online via a myGov account, over the phone or by a registered Tax Agent on your behalf.

Do banks check tax debt? ›

Lenders will take into account your tax debt, your history of repaying the debt and your other financial circumstances, while reviewing your home loan application.

Will Centrelink take my tax return if I have a debt? ›

Garnisheeing tax refunds

If you owe us money, we may ask the Australian Taxation Office to help us get it back. We can ask them to garnishee your tax refund. This means they will withhold or give us some or all of your tax refund or available credit.

What are the disadvantages of being under debt review? ›

The Cons: You will not be allowed to get credit while in the program. Your Debt Review will be listed on your credit record until the completion of the program or when all your debt listed under Debt Review are paid up in full. The payment period of your debt will be extended in order to lower your monthly instalments.

Should I be worried if I owe taxes? ›

Owing any amount of money to the IRS – large or small – is a scary prospect, but ignoring the debt won't make it go away any faster. If you've completed your income tax return for the tax year and you're looking at a huge tax bill, it's best to take care of it right away.

What happens if you owe on taxes and don't have the money? ›

File your return and pay whatever you can. The IRS will bill you for the rest. You'll owe interest on the balance, and you might owe a late payment penalty. If you owe $50,000 or less in combined taxes, interest, and penalties, you can request an installment agreement.

Can you pay monthly if you owe taxes? ›

Your specific tax situation will determine which payment options are available to you. Payment options include full payment, short-term payment plan (paying in 180 days or less) or a long-term payment plan (installment agreement) (paying monthly).

Can you pay back tax in installments? ›

You should be able to negotiate payment of your tax bill over a 6- to 12-month period with the appropriate helpline, provided that you can satisfy them that you cannot afford to pay the whole amount now and that you will be able to afford to pay in instalments.

How much do you have to warn to pay tax? ›

For the 2022/23 tax year, the Personal Allowance is £12,570. If you earn less than this, you usually won't have to pay any income tax. Your Personal Allowance might be bigger if you claim Marriage Allowance or Blind Person's Allowance.

Can I get a passport if I owe taxes? ›

If you do not resolve your tax issues before applying for a passport, your application will be delayed or denied. If you have seriously delinquent tax debt and have already applied for a new U.S. passport, we cannot issue a new passport to you until you have resolved your tax issues with the IRS.

How long does an ATO private ruling take? ›

We aim to provide private rulings within 28 calendar days of receiving all the necessary information.

How long does it take for the ATO to balance your account? ›

The quickest and easiest way to check the progress of your tax return is by using our self-help services. Online returns process in 2 weeks (14 days) while paper takes up to 10 weeks (50 business days).

Why do I owe the ATO so much money? ›

You may receive a tax bill if you have not had enough tax withheld from your income throughout the income year to meet your tax obligations. This may occur in the following circumstances: you move to a higher tax bracket – for example, through promotion, multiple or extra sources of income.

Can the ATO stop me leaving the country? ›

The ATO has the power to stop a taxpayer from leaving the country if they owe a tax debt. It can do this by issuing a Departure Prohibition Order. Once the ATO issues a DPO, you cannot leave Australia until the tax debt is fully paid or you reach a settlement with the ATO.

Does ATO data match everyone? ›

The ATO compares all of this data against the information provided in your tax return. If you have undeclared income, the ATO will find out easily.

Does the ATO phone people? ›

Scammers pretending to be from the ATO are calling people and telling them they have a tax debt that they need to pay straight away. We will use phone, email and SMS to contact you. But we will never: send a pre-recorded message to your phone.

What happens if the ATO audits Me? ›

What is involved in an ATO audit? If the ATO finds discrepancies on someone's tax return, they will contact the taxpayer directly or their tax agent to ask questions, such as an explanation or documentation for a deduction.

Can the ATO seize assets? ›

The ATO can get a freezing order against you if the ATO believes that there is an “unacceptable risk” to the ATO that you will dissipate your assets to avoid paying tax debts to the ATO.

How long do I have to pay my tax bill Australia? ›

How long do you have to pay it back? According to the Australian Taxation Office (ATO), you've generally got three weeks from today (1 November) before you have to cough up.

Can unpaid taxes be forgiven? ›

The IRS rarely forgives tax debts. Form 656 is the application for an “offer in compromise” to settle your tax liability for less than what you owe. Such deals are only given to people experiencing true financial hardship.

What if I owe more than 50000 in taxes? ›

If you owe more than $50,000, you may still qualify for an installment agreement, but you will need to complete a Collection Information Statement, Form 433-A. The IRS offers various electronic payment options to make a full or partial payment with your tax return.

What is the Fresh Start program? ›

On April 6, 2022, the U.S. Department of Education (ED) announced an initiative—called “Fresh Start”—to help eligible borrowers in default. Fresh Start will continue through one year after the COVID-19 payment pause ends. If your loans are eligible, you'll temporarily regain several student aid benefits.

How do you handle tax debt? ›

Tax Debt: 3 Steps to Resolve Your Debt With the IRS
  1. File your taxes — even if you can't pay. If you have a balance after crunching the numbers, make sure you still file. ...
  2. Make a payment plan, delay payment or settle. ...
  3. Tap an expert for assistance.
19 Jul 2019

Does tax relief affect your credit score? ›

If you're worried about the tax bill you owe the federal government hurting your credit scores, don't be. Tax liens are no longer included on your credit reports. This means they will not have an influence upon your ® Score or VantageScore®.

Is tax relief tax evasion? ›

Tax credits, deductions, income exclusion, and loopholes are forms of tax avoidance. These are legal tax breaks offered to encourage certain behaviors, such as saving for retirement or buying a home. Tax avoidance is unlike tax evasion, which relies on illegal methods such as underreporting income.

Do taxes get forgiven after 10 years? ›

Generally speaking, the Internal Revenue Service has a maximum of ten years to collect on unpaid taxes. After that time has expired, the obligation is entirely wiped clean and removed from a taxpayer's account. This is considered a “write off”.

How do you know if you qualify for tax forgiveness? ›

True tax forgiveness comes in the form of credits against the back taxes. These credits can reduce some or all of your tax liability. To qualify, you must make certain the IRS takes into account your taxable and non-taxable income, as well as your family size and specific financial situation.

What is considered forgiven debt? ›

If someone borrows money under a legal agreement to repay the money they borrowed (whether it be a fixed or determinable amount), then they have debt. If a debt is forgiven (aka debt forgiveness), then the debt is considered canceled and the amount that was still owed is no longer required to be paid.

Do you get in trouble if you owe taxes? ›

Whether you owe back taxes or current taxes, you may be hit with significant penalties and interest accruals over time if you don't pay. The failure to pay penalty starts at 0.5% of your balance due per month (capped at 25% of the back taxes you owe).

What happens if you don't pay what you owe in taxes? ›

If you don't pay the amount shown as tax you owe on your return, we calculate the Failure to Pay Penalty in this way: The Failure to Pay Penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. The penalty won't exceed 25% of your unpaid taxes.

What happens if you owe taxes but cant pay? ›

If you can't pay all or some of the taxes you owe, you can apply for a Long-term payment plan (installment agreement). The agreement allows you to pay any taxes you owe in monthly installments.

Is it normal to owe taxes every year? ›

Every year, certain taxpayers are surprised that they owe additional income taxes even though their employer withholds taxes from their paycheck each week. This is not as uncommon as you may think, and there are many reasons why it could happen.

Why do people owe so much in taxes? ›

A tax bill really just boils down to simple math: You owe more taxes than you paid throughout the year. That usually means you didn't have enough money withheld from your paycheck to cover taxes.

Why would someone owe so much in taxes? ›

Other factors that could contribute to why you owe so much in taxes for 2022 may include: Social Security, if this was your first year receiving benefits. Increase in taxable income because you didn't contribute to an individual retirement account. Change in filing status, changes in education, or tuition deduction.

What is the process if you owe taxes? ›

If you don't pay your tax in full when you file your tax return, you'll receive a bill for the amount you owe. This bill starts the collection process, which continues until your account is satisfied or until the IRS may no longer legally collect the tax; for example, when the time or period for collection expires.

How long do you have if you owe taxes? ›

With a streamlined plan, you have 72 months to pay. A minimum payment does kick in, equal to your balance due divided by the 72-month maximum period.

How do you pay if you owe taxes? ›

If you owe taxes, the IRS offers several options where you can pay immediately or arrange to pay in installments:
  1. Electronic Funds Withdrawal. Pay using your bank account when you e-file your return.
  2. Direct Pay. ...
  3. Credit or debit cards. ...
  4. Pay with cash. ...
  5. Installment agreement.
25 Jan 2022

Do unpaid taxes ever go away? ›

In general, the Internal Revenue Service (IRS) has 10 years to collect unpaid tax debt. After that, the debt is wiped clean from its books and the IRS writes it off. This is called the 10 Year Statute of Limitations. It is not in the financial interest of the IRS to make this statute widely known.

What happens if you don't pay your taxes for 5 years? ›

What Happens If You Don't File Your Taxes for Years? If you do not file your taxes for years, the IRS can take legal action against you. This can include filing a lien against your property or seizing your assets. In some cases, you may also be subject to criminal charges.

Can I pay tax in installments? ›

Your specific tax situation will determine which payment options are available to you. Payment options include full payment, short-term payment plan (paying in 180 days or less) or a long-term payment plan (installment agreement) (paying monthly).

What happens if you owe too much in taxes? ›

Taxpayers who don't meet their tax obligations may owe a penalty. The IRS charges a penalty for various reasons, including if you don't: File your tax return on time. Pay any tax you owe on time and in the right way.

Videos

1. Will You Owe Tax on Forgiven Student Loan Debt?
(Bankruptcy Bailout)
2. IRS Releases New Inflation Tax Brackets. What This Means For You
(Karlton Dennis)
3. Owe IRS Tax Debt & IRS Takes Your Refund, Here Is How To Keep Your Tax Refund, Former IRS Agent
(Help From A Former IRS Agent)
4. Former IRS Agent Reveals How To Negotiate Your IRS Tax Debt, KNOW THE SYSTEM TO HAVE SUCCESS
(Help From A Former IRS Agent)
5. What Options Are Available If You Owe Back IRS Payroll Tax Debt, Former IRS Agent Explains them
(Help From A Former IRS Agent)
6. How IRS Will Deal With You If You Owe IRS Tax Debt, Former IRS Agent Explains
(Help From A Former IRS Agent)
Top Articles
Latest Posts
Article information

Author: Horacio Brakus JD

Last Updated: 11/29/2022

Views: 6504

Rating: 4 / 5 (51 voted)

Reviews: 82% of readers found this page helpful

Author information

Name: Horacio Brakus JD

Birthday: 1999-08-21

Address: Apt. 524 43384 Minnie Prairie, South Edda, MA 62804

Phone: +5931039998219

Job: Sales Strategist

Hobby: Sculling, Kitesurfing, Orienteering, Painting, Computer programming, Creative writing, Scuba diving

Introduction: My name is Horacio Brakus JD, I am a lively, splendid, jolly, vivacious, vast, cheerful, agreeable person who loves writing and wants to share my knowledge and understanding with you.