ATO Payment obligations
Under the self-assessment tax system, it is your responsibility to meet your tax obligations and pay any other amounts you owe to the ATO as and when they fall due for payment. The ATO offers a number of different payment options in an attempt to make payment of tax obligations as smooth and efficient as possible.
If, however, you are unable to pay your tax debt on time, it is important that you contact the ATO immediately to discuss your circumstances. When a debt is paid late, interest is imposed immediately in the form of the general interest charge (GIC).
The GIC accrues daily on a compounding basis from the original due date until the debt is paid in full. The GIC automatically imposed by legislation is intended to encourage the payment of tax liabilities when they are due. The policy behind the interest charge is that it denies late payers an advantage over those who do pay on time.
You will be able to claim any GIC as a tax deduction in the year in which it is incurred.
If your debt is less than $25,000
If the outstanding debt is less than $25,000, the ATO offers an automated self-help service. You can ring this phone line and apply to either make a late payment or pay the debt by instalments over a specified period. You can choose to pay instalments weekly, fortnightly, monthly or as a lump sum, subject to the ATO accepting the arrangement. GIC will be imposed regardless of the arrangement you make.
If your debt is greater than $25,000
If the debt is greater than $25,000, you will need to apply directly to the ATO. You should provide details of your situation and specific circumstances that are contributing to your inability to pay. You should also provide details of your financial position, including what steps you have taken to obtain funds to pay your tax debt, as well as what you have done to make sure you meet future tax debts on time.
As above, the Commissioner may grant you an extension of time to pay or allow you to pay the debt in instalments. GIC will be imposed until the debt is paid in full.
New measures for small businesses
On 1 June 2009 the ATO introduced new measures to help small businesses that are struggling to manage their tax payment obligations in the current economic climate.
If you have an annual turnover of less than $2 million, you can apply for a GIC-free payment arrangement from now until 30 June 2010. Under this arrangement, GIC will be remitted for a maximum period of 12 months. If, however, you default on the payment arrangement then the GIC-free period ends at that date and full GIC will be imposed until the debt is paid in full.
This new measure only applies to activity statement debts, such as GST or PAYG. It does not apply to superannuation guarantee charge debts.
If your problem is only short-term cash flow, you can also request a deferral of payment on your next activity statement. You still have to lodge your activity statement on time but you may be granted a deferral of payment of up to two months, depending on your payment period. No GIC will be imposed for the period of deferral.
Release from your tax debt
Individual taxpayers can apply to be released from certain tax debts if paying that debt will cause serious hardship. Serious hardship will arise if payment of the debt would leave you unable to provide basic necessities for yourself or your family, such as food, accommodation, clothing, medical treatment or education.
Companies, trusts and partnerships cannot apply to be released. If your company, trust or partnership has a tax debt, you should contact the ATO directly as outlined above.
Remission of GIC
You may apply to have the GIC imposed on any late payment remitted. The Commissioner has the power to remit GIC in part or in full if it would be fair and reasonable in the circumstances. In your application you should outline all relevant factors in your case.
Things to consider include factors beyond your control, such as natural disasters, the unforeseen collapse of a major debtor or the sudden ill health of key personnel. A good payment history will be looked on favourably by the Commissioner, as will any steps taken by you to alleviate your circumstances.
If you have already deducted an amount of GIC and that amount is subsequently remitted, the amount of GIC becomes assessable as a recoupment.
In light of the above, if you have a tax debt that you are struggling to pay it is imperative that you contact us immediately to discuss your options.