Tax Debt and ATO Payment Plans Australia 2025–26: What to Do If You Can’t Pay Your Tax Bill

Tax time can be stressful enough without the added pressure of an unexpected tax bill. Whether you’re an individual who received a larger-than-expected assessment or a small business owner juggling cash flow, owing money to the Australian Taxation Office (ATO) is more common than you might think — and there are structured options to help you manage it.

The good news is that the ATO generally prefers to work with taxpayers rather than pursue immediate enforcement. But acting early, lodging on time, and understanding your options are critical. Here’s what you need to know about tax debt and ATO payment plans in 2025–26.

What Is ATO Tax Debt?

ATO tax debt arises when a tax or superannuation-related liability remains unpaid after its due date. It can affect individuals and businesses alike, and can stem from a range of sources:

• Income tax assessments you can’t pay by the due date
• GST or activity statement liabilities for businesses
• PAYG withholding amounts reported but not paid
• Superannuation Guarantee Charge (SGC) liabilities
• Fringe benefits tax (FBT) liabilities
• Amended assessments following ATO data-matching adjustments
• Failure-to-lodge penalties and General Interest Charge (GIC) on overdue amounts

One important distinction: lodging and paying are separate obligations. Even if you can’t pay, you should still lodge your return or activity statement on time. Failing to lodge adds avoidable penalties on top of your existing debt.

ATO Payment Plan Options

If you can’t pay your tax debt in full, an ATO payment plan allows you to pay by instalments over an agreed period. There are several ways to set one up.

Online Self-Service

Individuals and sole traders can often set up a payment plan through ATO online services linked to myGov. Businesses can use Online services for business. Registered tax or BAS agents can also arrange plans through their agent portal.

For debts of $200,000 or less, online or automated self-service may be available — though eligibility depends on your specific circumstances, not just the debt amount. Always check what options appear in your ATO account.

Telephone Arrangements

If online self-service isn’t available or doesn’t suit your situation, you can call the ATO directly:

• Individuals: 13 28 65
• Businesses: 13 72 26
• Lodge and pay enquiries: 13 11 42

Direct contact is recommended if your debt exceeds the self-service threshold, you need a repayment period longer than two years, you’re experiencing financial hardship, or your business may be facing insolvency.

Hardship and Special Arrangements

The ATO may consider interest-free arrangements for some small businesses with annual turnover below $2 million and activity statement debt of $50,000 or less — though this is subject to strict eligibility conditions and payment history.

For larger or more complex debts, the ATO may require security (such as a registered mortgage or bank guarantee) before agreeing to a plan.

General Interest Charge (GIC): What It Costs to Carry ATO Debt

One of the most important things to understand about ATO debt is that General Interest Charge (GIC) continues to accrue daily — even while you’re on a payment plan.

GIC is calculated using the 90-day bank-accepted bill rate plus a 7 percentage point margin, updated quarterly. Because it compounds daily, the longer you carry a debt, the more expensive it becomes.

A Critical Change from 1 July 2025

From 1 July 2025, GIC and Shortfall Interest Charge (SIC) incurred on ATO debts are no longer tax-deductible. This is a significant change that increases the real after-tax cost of carrying ATO debt during 2025–26. If you’ve been relying on a deduction to offset interest costs, that option is now gone.

This makes it even more important to pay down ATO debt as quickly as your cash flow allows.

Failure-to-Lodge Penalties in 2025–26

If you don’t lodge required returns or statements on time, the ATO can impose failure-to-lodge penalties. For 2025–26, one penalty unit is $330.

The basic penalty is $330 for every 28 days (or part thereof) a document is overdue, capped at five units:

For medium and large businesses, these amounts are multiplied — up to 5x for large withholders. This is why lodging on time, even when you can’t pay, is so important.

What Happens If You Ignore ATO Debt?

The ATO takes a risk-based approach to debt collection and generally tries to engage cooperatively first. But persistent non-payment or ignoring correspondence can escalate quickly:

• Offset of refunds and credits against your outstanding debt
• Garnishee notices to your bank, employer, or trade debtors — directing funds straight to the ATO
• Court action leading to judgment, bankruptcy notices, or company wind-up proceedings
• Director Penalty Notices (DPNs) for company directors, creating personal liability for unpaid PAYG withholding, GST, and SGC
• Business credit reporting — if your business has $100,000+ in tax debt overdue for more than 90 days and you’re not engaging with the ATO, your debt may be disclosed to credit reporting bureaus

The ATO provides a 28-day notice before credit reporting, giving you time to act. Maintaining a compliant payment plan is generally considered “effective engagement” and can prevent disclosure.

How to Apply for an ATO Payment Plan

Step 1: Know Your Full Debt Position

Check your total outstanding balance, including GIC and penalties. Identify any unlodged returns or statements — these need to be lodged first.

Step 2: Work Out What You Can Afford

Use the ATO’s payment plan estimator to model different instalment amounts and timeframes. Be realistic: your plan must be sustainable alongside your ongoing tax obligations.

Step 3: Gather Supporting Information

Have ready: your TFN or ABN, income and expense details, assets and liabilities, bank commitments, and an explanation of why the debt arose.

Step 4: Apply Through the Right Channel

Use myGov, Online services for business, the ATO’s automated phone line, or engage a registered tax agent to negotiate on your behalf.

Step 5: Maintain the Plan

Set up direct debit to avoid missed payments. If you think you’ll miss an instalment, contact the ATO before it defaults — not after.

Can You Get GIC or Penalties Remitted?

Yes — in some circumstances. The ATO may remit (reduce or waive) GIC or penalties if:

• The delay was outside your control (e.g., natural disaster, sudden illness, unforeseen business collapse)
• You took reasonable steps to minimise the delay
• You have a good compliance history
• Remission would be fair and reasonable in the circumstances

Individuals facing serious financial hardship may also apply for release from certain tax debts — though this doesn’t apply to companies, trusts, or partnerships, and doesn’t cover GST or PAYG withholding.

If you believe you have grounds for remission, document your circumstances carefully and seek professional advice before applying.

Practical Tips for Managing ATO Tax Debt

1. Lodge first, pay later — avoid compounding penalties by always lodging on time, even if you can’t pay
2. Pay as much as you can upfront — every dollar reduces the balance on which GIC accrues
3. Keep current obligations current — a payment plan for old debt won’t help if new liabilities keep piling up
4. Respond to ATO correspondence promptly — engagement matters and can influence the ATO’s approach
5. Seek professional advice early — especially if you’re a company director, facing insolvency, or disputing an assessment

Sources

• ATO: Payment plans
• ATO: General interest charge
• ATO: Failure to lodge on time penalty
• ATO: Director penalty notices
• ATO: Disclosing business tax debts
• Treasury: Tax Laws Amendment (2024 Measures No. 4) — GIC deductibility

Need Help Managing Your ATO Tax Debt?

Dealing with ATO debt can be overwhelming — but you don’t have to face it alone. At TaxServe Australia, our experienced tax professionals can help you:

• Understand your full debt position and options
• Negotiate a realistic payment plan with the ATO
• Apply for GIC or penalty remission where eligible
• Protect yourself from director penalties and enforcement action
• Get your tax affairs back on track

Contact TaxServe Australia today for a confidential consultation. Whether you’re an individual or a business, we’re here to help you resolve your tax debt and move forward with confidence.

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