What to do when you can’t pay your tax on time
Businesses who cannot pay their taxes on time can set up an agreed payment plan with the ATO to avoid late payment penalties. This may be especially useful for businesses during the post COVID-19 period.
In response to the economic effects of COVID-19 on businesses, the Australian Government has provided cash flow support as part of their stimulus package. However, support measures such as JobKeeper, cash flow boosts, and the Coronavirus SME Guarantee Scheme are set to end in September 2020. As a result, businesses relying on Government support may find themselves struggling financially when October arrives. It is therefore important that businesses are prepared for this period, and one way to do this is by setting up a tax payment plan.
A payment plan allows businesses to pay off their tax debt in instalments when they are not able to make a complete payment by the due date. Businesses with a debt of $100,000 or less can propose a payment plan through the ATO’s online Business Portal or through their tax agent or BAS agent. For debts over $100,000, businesses must contact the ATO directly to discuss their options. Businesses wishing to go on a payment plan are still required to lodge their activity statements and tax returns on time to avoid penalties.
Interest will generally continue to accrue on unpaid debts even when a business has made a payment plan. However, a 12-month payment plan free of interest may be available for small businesses with an activity statement debt. This will require businesses to pay their debt through direct debit within 12 months. To be eligible, businesses must:
- Have an annual turnover of less than $2 million.
- Have a recent activity statement debt of $50,000 or under that was paid within 12 months of it being due.
- Have no overdue activity statement lodgements.
- Have had a maximum of one payment plan default within the last 12 months.
- Be unable to obtain finance, such as a loan.
- Meet all of their other tax payment and lodgement obligations.
The ATO may require businesses to demonstrate their viability for a payment plan. This assesses the business’ ability to meet their ongoing financial commitments by considering factors such as gross margin, cash flow, liquidity, and asset/liability position.