Setting up an Australian Taxation Office (ATO) payment plan is a practical way for small businesses and individuals to manage tax debts they cannot pay in a lump sum. If you find yourself with a tax debt, you’re not alone—many businesses experience this at some point. The good news is, the Australian Taxation Office (ATO) offers payment plans that let you pay off your debt over time, rather than all at once. This article shows you how to set up a payment plan, what you need to know about upfront payments and ongoing payments, how to avoid extra costs like the General Interest Charge (GIC), and practical bookkeeping tips to help you stay on track.
Understanding ATO Payment Plans and What They Mean for Your Business
When you owe money to the ATO, you may be able to set up a payment plan. This means breaking your debt into smaller, regular payments—weekly, fortnightly, or monthly. You can often do this online, especially if your debt is under $200,000 and you have not defaulted on previous plans. For larger debts, you may need to provide more information about your business, such as financial statements and cash flow forecasts.
It’s important to realise that even when you’re on a payment plan, interest still applies. From 1 July 2025, this interest (called the GIC) is no longer tax-deductible. This means it’s more costly to carry ATO debt than before, so it’s best to pay off your debt as soon as you can.
When you apply for a payment plan, you may be asked to make an upfront payment—usually 10% of the total debt. This helps show you are serious about paying back what you owe. Once your plan is in place, you’ll get a confirmation with your payment dates and amounts. You can usually manage your plan online, changing payment amounts or frequencies if your financial position changes. If you use a credit or debit card to make payments, be aware of any card payment fees. These can add up, so check your bank’s terms before choosing this option.
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Bookkeeping and Business Steps to Manage Tax Debts
Getting on top of your tax debts starts with clear, up-to-date records. Good record-keeping helps you see your true financial position and lets you plan for tax payments and other business expenses. Here are some steps to help you manage your tax debts and payment plans:
Keep Your Business Records in Good Order
Keep all invoices, receipts, bank statements, and payroll records, as well as a record of your tax returns. This makes it easier to prepare your Business Activity Statement (BAS) and Pay As You Go (PAYG) reports. Digital records are easiest to maintain and access when you need them.
Separate Tax Payments from Everyday Expenses
Set up a separate bank account or reserve for your GST, PAYG, and superannuation payments. This way, you always have money ready for these obligations. It also helps you avoid accidentally spending money that should go to the ATO.
Forecast Your Cash Flow
Look ahead at your business income and expenses and plan for your tax payments. Regular cash flow forecasting helps you avoid surprises and shows you when you might need extra help or a new plan.
Consider Your Options If Things Change
If your financial position changes—for example, if your business makes less profit or faces unexpected costs—you can ask the ATO to change your payment plan. There are support options if you need more time or lower payments. However, it’s important to keep paying what you owe to maintain your plan and avoid defaulting. Missing payments can end your payment plan and mean you have to pay the full amount straight away.
Think About Interest and Other Costs
Remember, if you pay your debt quickly, you pay less interest. The GIC is added daily, so extra payments or paying off your debt early can save you money. If you have assets or access to finance, it may be worth paying your debt sooner rather than later.
Get Help If You Need It
If you’re not sure what to do or you’re worried about defaulting, ask for help. The ATO offers free support, or you can talk to a registered tax agent or bookkeeper. Some people may also be eligible for additional assistance based on their circumstances, such as Indigenous business owners who can show the ATO Indigenous badge.
Double-Check Your Requirements
Make sure all your lodgements, like BAS and tax returns, are up to date before you apply for a payment plan. The ATO will check this when you apply.
Practical Steps to Set Up and Maintain an ATO Payment Plan
Here’s a simple guide to help you get started:
Check Your Financial Position: Before applying for a payment plan, look at your debts, income, and essential business costs so you know what you can afford to pay.
Gather the Right Information: Have your recent financial statements, tax records, and bank details ready.
Apply Online: Most small businesses can apply for a payment plan online through your myGov account or the ATO’s online services for business.
Choose Your Payment Options: Decide how often you want to make payments—weekly, fortnightly, or monthly—and how much you can pay each time.
Set Up Reminders: Once your plan is in place, set reminders for your payment dates to ensure you never miss a payment.
Review Your Plan Regularly: If your business changes for better or worse, talk to the ATO about changing your plan.
Stay on Top of Future Tax Obligations: Keep lodging your BAS and PAYG on time, even if you’re on a payment plan for an earlier debt.
How to Avoid Tax Debt Problems in the Future
The best way to manage tax debt is to avoid it in the first place. Here are some simple tips to help your business stay on track:
Keep Up with Your Bookkeeping: Regular, accurate record-keeping helps you spot potential problems early.
Set Money Aside for Tax: When your business receives income, set aside a portion for GST, PAYG, and superannuation so you always have funds ready.
Use Technology: Modern accounting software can help you track your tax obligations and remind you about upcoming payments.
Check Your Reports Often: Review your business reports every month to see how you’re going and make changes if needed.
Talk to a Professional: If you’re not confident managing your own books, consider using a bookkeeper or accountant. They can help you stay compliant and make the most of your profit.
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As part of ACT Tax Group, we offer complete accounting and business advisory services tailored to your needs.
Final Thoughts: Managing ATO Payment Plans and Tax Debts
Setting up an ATO payment plan is a responsible step if you find yourself with a tax debt you can’t pay in full. It’s important to understand how much your debt will cost with interest, and to pay off your debt as quickly as you can. Good bookkeeping, regular reviews of your financial position, and planning ahead for tax payments help you stay in control of your business finances.
Take charge of your business’s financial health by keeping your records up to date, separating your tax money, and asking for support when you need it. With the right approach, managing tax debts and payment plans can be straightforward, giving you peace of mind and helping your business move forward.
If you’re facing tax debt, don’t wait. Visit the ATO website for more information, and if you’re ready, contact them to discuss your options. By taking action today, you can put your business in a stronger position for the future.
