Guide to managing your tax debt
Guide to managing your tax debt
Overview
Tax is collected so the government can provide services for the community, such as welfare, health, defence and education.
Everyone has an obligation to pay tax according to what they earn. While most people try to do the right thing in paying their tax, some find it difficult to stay on track with their tax obligations.
Many people overestimate the size of the problem. Debt is often a temporary problem, caused by unforeseen personal circumstances or a short-term business downturn. Businesses might miss an activity statement payment, then find themselves with a debt that grows with general interest charge (GIC). Some people may end up with a debt if they haven't put enough money aside from the interest they receive on their savings or from a capital gain, such as the sale of property.
The simplest way for you to manage your tax is to pay on time. If you owe tax or are finding it hard to pay on time it is important to contact us early on. We will work with you to solve the problem, often by making an arrangement to pay by instalments.
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It is important to lodge your activity statements and tax returns on time even if you are unable to pay by the due date.
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If you are experiencing serious hardship, you can apply for release from payment of some or all of your tax liabilities.
Whether you're an individual taxpayer or running a business, we want to make it easy for you to comply with your tax and superannuation obligations. We offer a range of services and tools to help you avoid falling into debt.
When people fall behind with their tax payments, we address the debt early while it is manageable. We take a differentiated approach to each taxpayer based on their individual circumstances, including their payment and lodgment compliance history.
If you make a payment arrangement with us but don't keep to it, or ignore your payment obligations, we will use stronger measures such as garnishee action to collect the debt. In some cases, we may take legal action to make sure that the correct tax is paid. This ensures a level playing field and fairness for all taxpayers.
Help with paying your tax debt
We understand that occasionally it may not be possible to pay on time because of financial or other difficulties.
As a first step, it is important to know how much you owe so you can manage your tax obligations.
If you're having difficulty paying on time, contact us immediately. We will work with you to find a mutually acceptable solution. You may be able to make an arrangement to pay by instalments or defer a payment. To make payment as easy and convenient as possible we offer a variety of payment options.
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If you don't pay your tax on time, general interest charge (GIC) will accrue from the due date until the amount is paid in full. However, we may be able to remit some or all of the GIC depending on your circumstances.
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In circumstances of serious hardship or natural disaster, we will do our best to support you in accessing the relief options available.
If you believe your assessment is incorrect, you can dispute the debt.
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Stop the problem from getting worse
Most people know when they are about to miss a tax payment. It is important you lodge your activity statements and tax returns on time even if you are unable to pay by the due date. Contact us as soon as you become aware of a problem, and you may be able to avoid additional charges and penalties.
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How much tax do you owe?
Under the self-assessment system, we use the information you provide on your income tax return or activity statement to work out how much tax you need to pay, if any.
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If you're not sure whether you need to lodge an income tax return, follow the steps in our online lodgment tool.
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Once your paperwork has been processed, we will send you a notice or account statement to let you know if you owe money or are entitled to a refund. This will also tell you when you need to make any payments. Fully self-assessed companies and super funds do not always receive a notice of assessment where an amount is payable.
Contact us immediately if you believe your assessment is incorrect, or you think we should have more information about your financial situation.
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Even if you disagree with your assessment, you must still pay any amounts owing by the due date, unless we have made other arrangements with you (see Disputing your debt). Once the dispute is resolved we will refund any money that you are owed.
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Making a payment arrangement
If you cannot pay in full, an arrangement to pay by instalments is often a good way to address a tax debt.
How to make an arrangement
When you contact us, you will need to provide your tax file number or Australian business number (ABN). We will also need to know more about your financial situation and your individual circumstances so we can work with you to make an arrangement that is manageable and suitable to both parties.
Some of the information we may need from you is:
- how the debt arose
- why you haven't been able to pay it
- how you plan to pay it
- what you can afford in instalments
- how often you can pay instalments
- when you can make your first payment
- what you have done to avoid these circumstances in the future
- who you bank with and the balance of your account
- whether you have an overdraft facility
- your average monthly income and expenses
- your major assets and liabilities
- whether you can sell or borrow against an asset to clear the debt
- what type of business you operate (where applicable)
- details of your current debtors and creditors (where applicable).
If you are negotiating with us about your business, we may require you to demonstrate the viability of the business. For more information, refer to Assessing business viability.
Even if you have made an arrangement to pay after the due date or by instalments, general interest charge (GIC) will accrue on the unpaid debt from the original due date.
Once an arrangement has been accepted it is important to pay all instalments, and ongoing liabilities, on time and in full. Not meeting these conditions will cause the arrangement to default.
Example
Phil, a self-employed carpenter, went through a 'quiet period' during which he found it difficult to get work. He continued to submit business activity statements but stopped paying his goods and services tax (GST).
After receiving a notice about his outstanding tax debt, Phil phoned us and negotiated an arrangement to pay the debt by instalments. Phil had been paying these instalments when he received a phone call from a tax officer advising that his payment arrangement had defaulted.
Phil had not understood that the instalments were only addressing the debt he had incurred and that to comply with the terms of his payment arrangement he also needed to meet his ongoing GST obligations as they arose. After considering Phil's individual circumstances, we agreed to a new payment arrangement with more stringent requirements.
If a taxpayer defaults on a payment arrangement, we may impose more stringent requirements before agreeing to a new arrangement. For example, we may ask for an upfront payment or request that payments are made by direct debit, or both.
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Small businesses with short-term financial difficulties
We understand that small businesses can experience short-term financial difficulties due to challenging business conditions or unexpected events such as natural disasters. We offer help to viable businesses with an annual turnover of less than $2 million that are having trouble meeting their tax payment obligations in such circumstances. For more information, refer to Help for small businesses experiencing short-term financial difficulties.
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Payment arrangements for debts less than $25,000
If your debt is less than $25,000 you can use our 24-hour automated service to arrange a late payment or to pay by instalments.
When you phone the automated service, you will need to state:
- your tax file number (individual taxpayers) or ABN (business taxpayers)
- the amount outstanding.
If you don't know how much to pay, you can say 'make a suggestion' and we will offer you an arrangement.
If you have worked out how much you can pay, state the amount and then how you want to pay:
- weekly
- fortnightly
- monthly
- lump sum.
You'll be asked to set a date for your first payment. Choose a date at least 15 days after your phone call. If we accept the arrangement you suggest, we'll send you a letter with payment information within 15 days.
Example
Michaela works as a part-time sales assistant in a small retail outlet. Twelve months ago Michaela's hours were cut due to a downturn in sales. This left her with very little spare money after the monthly mortgage payment. In addition, she had a number of unforeseen medical and educational expenses. Michaela sold some of her shares to help make ends meet.
Michaela usually received a refund after lodging her income tax return, but this year she had a tax bill of $2,000 due to the capital gains tax (CGT) on the sale of her shares. She hadn't realised that there would be CGT and hadn't put aside any money for this.
Realising that she would not be able to pay her income tax by the due date, Michaela phoned us. We discussed her situation and negotiated a sustainable payment arrangement that would allow her to clear the debt within a reasonable time. The payments were scheduled so they didn't clash with the mortgage payments.
All payments were made as agreed, allowing Michaela to clear her tax debt and move on. A small amount of GIC accrued over this period, which we remitted in full.
Assessing business viability
When assessing a business's viability, we look at its ability to pay its debts and meet its ongoing commitments. The assessment involves considering a range of indicators, including:
- gross margin
- cash flow
- asset/liability position (including working capital)
- liquidity
- debtor/creditor position
- availability of funding.
If you are asked to demonstrate the viability of the business, you will need to provide the following information within an agreed timeframe:
- a proposal to pay all amounts owed to us in the shortest possible timeframe, while allowing all future tax obligations to be met by the due date
- details on how the debt arose
- steps taken to mitigate the debt (for example, loan applications)
- the most recent statement for each bank or financial institution account held
- the following documents for the year to date and the two preceding financial years
- detailed profit and loss statement or statement of financial performance
- detailed balance sheet or statement of financial position
- details of any overdraft or loan facilities, including term loans, hire purchase and leasing facilities (include the balances owing, the monthly repayment amount for each debt commitment and the limit for overdraft/s)
- aged creditors listing
- aged debtors listing
- any other relevant information which may assist us in assessing your proposal.
Where to send financial documentation
Write your Australian business number (ABN) and company name on all documents and fax them to us on 1300 724 793 or send them to:
Australian Taxation Office
PO Box 1129
Penrith NSW 2740
What happens next
We will let you know if your payment proposal is acceptable.
Payment options
We offer a range of options to make payment as easy and convenient as possible, including:
- BPAY®
- credit card
- direct credit
- direct debit
- cheque or money order
- Australia Post.
® Registered to BPAY Pty Ltd ABN 69 079 137 518
Serious hardship
Serious hardship exists when payment of the debt would leave you unable to provide food, accommodation, clothing, medical treatment, education or other necessities for yourself, your family or other dependants.
If you are experiencing serious hardship you can apply for release from payment of some or all of the following tax liabilities:
- income tax
- fringe benefits tax
- fringe benefits tax instalments
- pay as you go instalments
- some of the associated penalties and charges.
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Individual taxpayers and taxpayers who are operating a business as a sole trader can apply for release, but entities such as companies, trusts and partnerships cannot.
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You will need to provide details of your family's expenses and assets, your income and your spouse's income, and attach recent bank statements and other supporting evidence.
Assets such as your home, motor vehicle, household goods, tools of trade and savings for necessities are regarded as normal and reasonable and we will generally not expect you to sell them in order to pay your debt. However, you may be expected to sell non-essential assets, or use them as security for a loan, including:
- caravans (unless the caravan is your home)
- holiday homes
- investment properties
- luxury motor vehicles
- boats
- substantial life assurance or annuity entitlements
- shares and other investments.
People affected by natural disasters
If you have been affected by a natural disaster such as flood, bushfire or drought, and you're finding it difficult to pay, contact us - we want to help.
Assistance is not limited to those taxpayers directly affected, but can extend to other taxpayers such as business owners whose main income is derived from affected areas.
Depending on your circumstances we may be able to help by:
- allowing more time to lodge tax returns and activity statements
- allowing more time to pay tax debts without incurring charges
- allowing you to pay your tax debt by instalments
- waiving any penalties or interest that may have been imposed
- fast-tracking refunds.
You may also be able to apply for release from your debt on the grounds of serious hardship.
Non-pursuit of tax debts
In very limited circumstances we may decide not to pursue a debt due to your financial situation. However, we may reconsider this decision if your financial situation improves.
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Refer to the Law Administration Practice Statement PS LA 2011/17 for more information.
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Disputing your debt
If you think your assessment is wrong:
- check all the details in your notice of assessment
- check the details you provided in your tax return or activity statement.
If you are unsure or have any questions, contact us.
If you still think your assessment is wrong, write to us and ask for it to be amended. In your letter, explain what you think is wrong and why. Include copies of any documents that support your claim.
We will use the information you provide to review your assessment and either send you an amended assessment or advise you that there is no change to your assessment.
If you disagree with our decision, you can apply for an independent, external review. Some reviews will be made by the Administrative Appeals Tribunal or, if the amount is less than $5,000, by the Small Claims Tax Tribunal. You may also be able to appeal directly to the Federal Court.
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Your payment is still due
Even if you're disputing an assessment, you must still pay the outstanding amount by the due date otherwise it will attract general interest charge (GIC).
We may take recovery action for outstanding taxes even if you have requested a review or lodged an objection or appeal. If the dispute is resolved in your favour (in whole or in part), we will generally pay you interest on your overpayments.
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You will also need to write to us (setting out your reasons) if you want to defer your tax payment until your dispute has been resolved. If you have a good payment history, we may agree to defer recovery action until the dispute is resolved. However, GIC will still apply from the due date on any amount that is still payable when the dispute is resolved.
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A 50:50 arrangement
We may be able to offer you a 50:50 arrangement. In this case, you pay at least 50% of the disputed amount plus any other outstanding tax debts. You also agree to provide any information that is needed to resolve the dispute. In return, you can defer paying the rest of the amount until the dispute is resolved. If your objection is unsuccessful you will only be charged 50% of the GIC that accrues on the outstanding amount from the date you made the 50% payment. This concession is increased to 75% if your case is funded as part of the test case litigation program.
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Refer to:
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What if you can't pay your tax?
If you cannot pay your tax by the due date, contact us as soon as possible. Although we prefer payment in full, we may be able to make an arrangement for payment by instalments, or defer payment to a later date. Addressing problems early can prevent your debt from becoming more difficult to manage.
It is important you lodge your activity statements and tax returns on time, even if you are unable to pay by the due date. You'll avoid a failure to lodge on time (FTL) penalty and show us that you're aware of your obligations. We will also use any credits or refunds due to you to help pay off your debt.
If you miss a payment and haven't let us know you're having problems, we will phone you or send you a notice soon after the due date. We may also refer your debt to a external collection agency.
We are committed to supporting taxpayers who want to do the right thing and creating a level playing field for all individuals and businesses. However, we will use stronger measures when taxpayers:
- are unwilling to work with us
- repeatedly default on agreed arrangements
- don't have the capacity to pay and don't take steps to resolve their situation
- have been subject to an audit where deliberate avoidance was detected and payment avoidance is continuing, or
- appear to be engaging in phoenix activities (that is, using liquidation to avoid financial obligations without risking assets and with the intention of resuming business operations through a new entity).
Example
Jan and Dean set themselves up as a partnership and opened a new clothing shop in a large shopping centre. Their main overheads were rent, paying a share of the profits to the shopping centre owner and staff costs. They used most of their start-up capital in setting up their shop.
This was their first business. They didn't keep the GST separate, and when takings were low they didn't put enough aside for pay as you go (PAYG) withholding and superannuation for their staff. Within six months they had an activity statement debt of around $10,000 and a superannuation guarantee charge debt of almost $2,000. Fortunately, they had kept their lodgments up to date so they had a good record of what was due and avoided FTL penalties.
We sent Jan and Dean a payment reminder letter for the activity statement debt. They paid $500 and used our self-help phone service to make an arrangement to pay by instalments on a fortnightly basis.
Six weeks later they had only paid one of their instalments. We phoned Jan to discuss the situation and negotiated a new payment arrangement for the existing debt. She felt that the arrangement was sustainable, taking into account all of their business commitments.
From our discussion, Jan and Dean realised they needed to structure their finances more carefully. They organised for a bookkeeper to visit them once a week, set up a separate account for GST, organised an on-site visit with one of our officers and negotiated an increased overdraft with their bank.
How we contact you
If you are having difficulty paying your tax debt, it is important you contact us. If you fail to address your debt we will contact you:
- By phone - generally during normal business hours. We also make phone contact between 5.00pm and 8.30pm, which is more convenient for many people.
- By letter - sent to the postal address we have on our records.
- By SMS.
- Using an external collection agency.
- By having a tax officer visit you in person.
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Occasionally we may send you information about tax matters and updates via email. However, we will never send you an email requesting you to confirm, update or disclose confidential details. If you have received a fraudulent communication or are unsure of the legitimacy of a communication which claims to be from us, let us know.
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Refer to Online security for information about protecting your personal details online as well as tips to avoid tax scams and frauds.
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General interest charge (GIC)
If you don't pay your tax on time, general interest charge (GIC) will be automatically added to what you owe.
The rate of GIC applied is revised quarterly. The charge is calculated on a daily compounding basis on the amount outstanding and added to your account periodically.
You can generally claim a tax deduction for GIC in the year that it is incurred.
Remission of GIC
You can ask for some or all of your GIC to be remitted. When considering your request, we will look at your individual circumstances, particularly the factors relevant to the late payment.
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Refer to Law Administration Practice Statement PS LA 2011/12 for more information.
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If you want to request remission of your GIC, you can either:
- phone us on 13 11 42 (for amounts up to $25,000), or
- write to us.
Make sure you explain fully why your payment was delayed and any steps you took to avoid the delay.
If your GIC remission request is approved, you must include that amount in your income tax return as assessable income in the year in which it was remitted.
Example
Sumathy runs her own small business. She had paid her tax regularly over many years, but suddenly the payments stopped.
Aware of her good payment record, we phoned Sumathy and found that she had recently been diagnosed with a serious illness and hadn't been able to keep up with managing her business finances.
Sumathy sent us a letter explaining why she had missed making payments, along with a medical certificate from her doctor. Considering her circumstances, we were able to remit some of the GIC and accepted a payment arrangement based on the business obtaining a secured bank loan.
Sumathy kept up with her payment arrangement, cleared the debt and is now back on track.
Penalties
We may impose a penalty where a taxpayer fails to comply with their tax obligations, for example, where a taxpayer does not lodge a document by the due date.
Generally we will not impose a penalty unless we have notified you first.
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Some penalties are automatically imposed by law, for example, director penalties.
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Remission of penalties
You can ask us to remit some or all of any penalty we impose. When considering your request, we look at your individual circumstances, particularly the factors relating to the penalty.
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For more information, refer to:
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Example
Jonathon is an electrical subcontractor. He operates his business using a company structure. The company lodges quarterly business activity statements (BAS) for its GST and pay as you go (PAYG) instalments.
He has regular lease payments for his work vehicle and a number of other regular expenses. Unfortunately there have been significant delays in payments to him for the work he has carried out even though he has had to pay suppliers up-front for materials. This has caused significant cash flow problems.
In response to these cash flow problems, he didn't put aside enough for his GST or PAYG instalments. He also fell behind with his BAS lodgments. We imposed failure to lodge on time (FTL) penalties for the overdue BAS lodgments, and general interest charge (GIC) for the late payments.
Eventually, Jonathon decided he needed to deal with his problems. He employed a bookkeeper who brought the business records up-to-date and lodged the outstanding BAS. On Jonathon's behalf, the bookkeeper contacted us and negotiated a payment arrangement for the outstanding debt (including penalties and interest).
All payments were made as agreed. We were able to remit some of the FTL penalties and GIC, which made it easier for Jonathon's company to get back on track.
Using tax refunds to pay your debt
If you have a debt with us and you're due to receive a refund or credit (for example, from an earlier income tax return or activity statement), we will generally use this to reduce your debt. We are required by law to do this.
We are also required to send part or all of your refund to Centrelink, the Family Assistance Office or the Child Support Agency if you have a debt with them.
Once all of your debts have been cleared, we will refund any remaining credit to you.
We will notify you in writing if we use your refund to pay a debt.
However, if you need the refund payment to avoid serious hardship, we may be able to pay it to you instead. Contact us if you think this applies to you.
External collection agencies
We refer selected debts to external collection agencies for collection on our behalf. The debt is not sold to these firms and remains payable to us.
If your debt is referred to an agency for collection, they will immediately notify you in writing. They will negotiate with you for the debt to be paid either in full or by instalments. If they cannot reach an agreement with you, we may need to take stronger measures to collect the debt, such as issuing a garnishee notice or even legal action.
We only provide collection agencies with the personal information (including tax file numbers) they need to collect the debt.
Our contracts with collection agencies oblige them to meet all Commonwealth privacy and security requirements.
We work closely with the agencies we engage to ensure they provide a professional service. Their negotiations with you should be of the highest quality.
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Having a tax debt referred to a collection agency will not affect your credit rating.
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Stronger measures
We take firmer action against taxpayers who are unwilling to work with us to address their tax debt or repeatedly default on agreed arrangements.
Even when we have started to implement stronger measures, including legal action, we are willing to work with taxpayers to help them address their tax debt.
We do not take firmer action if you are complying with an agreed payment arrangement, including lodging and paying current obligations on time.
Stronger measures include:
Garnishee notice
We can issue a garnishee notice to a person or business that holds money for you, or may hold money for you in the future. The garnishee notice requires them to make payments directly to us to reduce your debt. The payments may be a percentage of your wages or we may issue a notice for a lump sum amount. The notice will also specify when payments are to be made.
When we issue a garnishee notice, we'll send a copy of it to you.
For individuals, we may issue a garnishee notice to:
- your employer or contractor
- financial institutions and building societies where you hold deposits
- people who owe money to you from the sale of real estate, such as purchasers, real estate agents and solicitors.
For businesses, we may issue a garnishee notice to your financial institution, trade debtors and suppliers of merchant card facilities.
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If your situation has changed since a garnishee notice was issued or the action taken is causing you financial stress, contact us to discuss your circumstances.
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Director penalty notice
Company directors have a legal responsibility to ensure that their company meets its pay as you go (PAYG) withholding and superannuation guarantee charge (SGC) obligations.
The director of a company that fails to meet a PAYG withholding or SGC liability in full by the due date automatically becomes personally liable for a penalty equal to the unpaid amount.
When a PAYG withholding or SGC liability remains outstanding, we may issue a director penalty notice (DPN), although this is only necessary to enable us to start legal proceedings to recover the penalty. Even without issuing a notice, we can collect the penalty by other means, for example, by withholding a tax refund.
Remitting the penalty
The penalty will be remitted if your company pays the outstanding amount at any time.
It will also be remitted if, at any time before the 22nd day after a DPN is 'given' to you:
- your company has gone into voluntary administration or liquidation, and
- it had reported its PAYG and SGC liabilities to us within three months of their due dates.
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- In the past there was no restriction on remission options relating to PAYG liabilities. This changed as of 30 June 2012, when the option for remission on the basis of voluntary administration or liquidation was removed for penalties relating to company liabilities that had not been reported within three months of their becoming due.
- Under the law, 'given' means placed in the Australia Post system.
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New directors
Newly appointed directors have 30 days before they become liable to penalties equal to:
- all their company's outstanding PAYG withholding liabilities, and
- any outstanding SGC liabilities that arose after 30 June 2012.
As a new director, you will not be liable to a director penalty if, within the 30 days, the company:
- pays the amount outstanding
- goes into voluntary administration, or
- goes into liquidation.
Defences
You will not be liable for a director penalty if one of the defences under the relevant legislation is available to you, namely that:
- because of illness or for some other good reason, you did not take part (and it would have been unreasonable to expect you to take part) in the management of the company
- you took all reasonable steps to ensure that one of the following three things happened
- the company paid the amount outstanding
- an administrator was appointed to the company
- the directors began winding up the company
- none of the above steps were available to you
- in the case of an unpaid SGC liability, the company treated the Superannuation Guarantee (Administration) Act 1992 as applying in a way that could be reasonably argued was in accordance with the law, and took reasonable care in applying that Act.
Legal action
In some cases we may take legal action to recover outstanding tax and superannuation debts. The action we take depends on whether the debt is owed by an individual (or sole trader), partnership, trust, superannuation fund or company and may include:
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The terms we have used may be different to those used in your state or territory.
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Claim or summons
If you don't work with us to address your debt, we may file a claim or summons with the relevant court of your state or territory in order to have the court recognise that the debt is duly owed. Once the court has recognised that the debt is owed, we may execute on the judgment debt in a number of ways, including by filing and serving a bankruptcy notice.
Bankruptcy notice
A bankruptcy notice obliges you to either pay your debt or make a payment arrangement with us within the 21 days following service of the bankruptcy notice. If you are unable to do this, we may file a creditor's petition to make you bankrupt. Bankruptcy is a legal declaration that a person is unable to pay their debts. It places a number of restrictions and obligations on them. When a person is declared bankrupt, nearly all of their assets are placed with a bankruptcy trustee and then sold to pay the person's debts.
We will not seek to bankrupt you if it is clear that you are able to pay your debt in a reasonable time. If you are facing bankruptcy action but believe that you can pay your debts, you should provide us with clear evidence of your ability to pay.
Example
Zafina, a self-employed fashion designer, fell into debt due to cash flow difficulties. She had purchased a commercial property for her business in the expectation of monthly sales being at a certain level, but actual sales consistently fell well short of this. To meet her regular mortgage and supplier payments, she had not paid her business activity statement obligations for nearly eight months, and also had an unpaid income tax assessment.
Although we contacted Zafina soon after she missed a payment, she was unable to propose an acceptable arrangement to pay her tax debt.
After filing a claim, we obtained judgment from the court when Zafina failed to challenge the claim. Based on this judgment, we served Zafina with a bankruptcy notice. Zafina contacted us to advise that she was unable to pay anything towards her $30,000 tax debt.
We filed a creditor's petition and Zafina was declared bankrupt by the Federal Court after failing to demonstrate she was solvent and capable of meeting her tax and other outstanding debts.
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Voluntary bankruptcy
You can go into bankruptcy voluntarily by filing a debtor's petition with the Official Receiver at the Insolvency and Trustee Service of Australia (ITSA).
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Creditor's petition
A creditor's petition is essentially an application to the Federal Court or Federal Magistrates Court for a sequestration order to declare you bankrupt. Anyone you owe money to, including us, can file a creditor's petition if you have committed an 'act of bankruptcy' (such as failing to comply with a bankruptcy notice) within the preceding six months.
If the sequestration order is given, you will become bankrupt and a trustee will be appointed to manage your estate. This usually involves the sale of the bulk of your assets to pay your creditors, including us.
The court will not issue the order if you can demonstrate that you are able to immediately pay all of your debts.
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Refer to the Insolvency and Trustee Service Australia website at www.itsa.gov.au for more information.
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Statutory demand
We can issue a statutory demand for payment to a company that has not paid its tax debts. A statutory demand requires the company to pay the entire debt or enter into a payment arrangement with us within 21 days of the demand being served.
If a company doesn't comply with the statutory demand, we may use the non-payment as evidence that the company is insolvent. Within the three months following the compliance date specified in the demand, we have the right to file an application with the Federal Court to wind up the company.
Wind-up action
When a court orders a company to be wound up, an official liquidator is appointed to sell the company's assets and distribute the resulting funds to the company's creditors.
We will take action to wind -up a company if it has failed to pay its debts and we have not been able to make a suitable payment arrangement. These circumstances may indicate that the company is insolvent and there could be a risk to us (and possibly to other creditors) that the debt will not be paid if the company is allowed to continue trading.
Example
The White Bread catering company began falling behind in lodging its business activity statements and paying its tax. We contacted the director each time this happened, which prompted her to lodge the outstanding statements and enter into a payment arrangement.
However, the company did not make the agreed payments. We warned the director that if this continued we would commence legal recovery action. Another payment arrangement was made, but again the company failed to pay. Further investigation of the company's financial information revealed it appeared to be trading while insolvent.
We issued a statutory demand requiring the company to pay the debt and when the company failed to comply with this demand, we applied to the court for an order to wind up the company. This resulted in the company being liquidated and the net proceeds of the sale of its assets being distributed to its creditors, including us.
How to avoid a tax debt
Our research and experience shows that good record keeping and managing cash flow are key to avoiding debt. It is also important to have a good understanding of your tax obligations so you can plan ahead to pay the right amount at the right time.
Here are some simple tips to help you avoid getting into debt:
- Understand your tax obligations and budget for them.
- Keep money aside from a capital gain when selling an asset such as property or shares.
- If you are collecting GST, always keep it in a separate account.
- Update your financial records regularly (at least once a month).
We encourage you to contact us if you have any questions about your tax. You could also visit a financial adviser or accountant for advice.
You can obtain free advice from government-funded financial counsellors across Australia.
We aim to make it as easy and inexpensive as possible for all taxpayers to meet their tax obligations. We have developed a variety of tools and offer a number of assistance services to help individuals and businesses stay on track.
Individuals
It is important to understand how much tax you need to pay on your income or capital gains. Always keep an adequate amount aside to cover tax when you receive a payment that has not been taxed, such as when you sell shares or property (capital gains tax may apply), or income from an investment such as shares.
If you've been having trouble with your tax payments, you may need to improve your record keeping or budgeting, or you may need help in filling out your tax return. We have developed a range of tools and services to help you better understand and meet your tax obligations.
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Our tax calculator can help you to estimate whether you owe us money for this financial year.
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If you are a low income earner the Tax Help program can help you to fill out your tax return. Tax Help is a network of trained volunteers who provide a free and confidential service to help people complete their tax returns at tax time. These volunteers are people from within the community. They are not ATO staff, but are trained and supported by us.
We encourage you to contact us if you have any questions about tax. You could also visit a financial adviser or accountant for advice. You can obtain free advice from one of the government-funded financial counsellors across Australia.
Businesses
We know that running a business can be complicated and that it can be especially difficult for small businesses to stay on track. Our research shows that businesses are more likely to fall into debt if they:
- do not keep their GST and income tax payments separate from their other finances
- have difficulty managing their cash flow and cannot predict monthly income and expenses
- do not update their business records frequently.
We want it to be as easy and cheap as possible for you to pay your tax, so we offer a range of online and personal services to help businesses.
If you find it difficult to manage your financial affairs, you might like to arrange one of our business assistance visits. You could also visit a financial adviser or accountant for advice. You can obtain free advice from one of the government-funded financial counsellors across Australia.
Business assistance visits
We offer a free, confidential, practical support service aimed at keeping your business on track, or helping you get back on track. It gives you access to experienced tax officers who can answer your questions and help you get on top of your tax issues, including your payment obligations.
In addition to phone support, we offer on-site visits. We can organise a visit for a time and place that suits you. This visit is free and tailored to your needs. During the visit we can also demonstrate our online tools and calculators, and advise on the commercial tax software that meets our requirements.
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For more information:
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Any information you share with us during an on-site visit is completely confidential. Our focus is to help you manage your tax, not look for evidence to conduct an audit.
Business seminars and workshops
We run a range of free seminars and workshops on tax basics, record keeping and employer essentials.
Tax calendar
If you are a sole trader or run a small business, you might find our tax calendar useful. This is an easy-to-use computer tool that will help you plan and manage your tax obligations and give you timely lodgment and payment reminders.
This free electronic calendar can be set up to record all the dates you need to know throughout the year, such as when to pay your employees' superannuation and lodge your activity statements.
This tool can also:
- set up reminders
- record notes and appointments
- be updated to adapt to changing business structures
- print a yearly planner showing your tax obligations and due dates.
Business Portal
You can interact with us online using our Business Portal. It's secure and easy to use with step-by-step instructions. You can lodge your activity statement online and access your running balance account, including all penalties and general interest charge (GIC).
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For more information refer to:
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Other information for businesses
We have a range of information to assist businesses to understand and manage their tax and super obligations.
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For more information, refer to:
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Contact us
Automated self-help phone service
If you have a tax debt and cannot pay by the due date, you can use our automated self-help service and apply to:
- make a late payment, or
- pay the debt by instalments over a specified period.
To use our 24-hour automated service, phone:
- businesses - 13 72 26
- individuals - 13 28 65.
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You can use this phone service for debts that are less than $25,000.
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Debt payment email enquiry
You can submit an email enquiry with your debt payment questions to us.
Debt enquiries - 13 11 42
For information about options to address your tax debt, to negotiate a payment arrangement, request remission of GIC or penalties, or seek assistance if you are facing serious hardship.
Our call centre is open 8.00am to 6.00pm weekdays. We are closed on weekends and public holidays.
Personal tax enquiries - 13 28 61
For enquiries about:
- retirement
- family tax benefit
- tax file number
- pay as you go - including activity statements
- Higher Education Loan Program
- Student Financial Supplement Scheme
- account balance
- replacement cheque
- preparation of an online tax return
- income tax generally
- lodgment
- notices of assessment
- our free Tax Help program to help low income earners to complete their tax return.
Business tax enquiries - 13 28 66
For enquiries about:
- business income tax
- fringe benefits tax
- fuel tax credits
- goods and services tax
- pay as you go
- activity statements, including lodgment, payment and accounts
- business registration (including Australian business number and tax file number).
Also, call this number to arrange a free on-site assistance visit for your small business.
Business seminars and workshops - 1300 661 104
To register for a free seminar or workshop on tax basics, record keeping and employer essentials.
Emergency Support Info Line - 1300 304 975
To discuss how we can help you if you have been affected by a natural disaster such as flood, bushfire or drought, and you're finding it difficult to pay.
Translating and Interpreting Service (TIS) - 13 14 50
If you do not speak English well and need help from the ATO, phone the Translating and Interpreting Service (TIS).
TTY - 13 36 77
If you are deaf or have a hearing or speech impairment, phone the ATO through the National Relay Service (NRS) on the numbers listed below:
- TTY users, phone 13 36 77 and ask for the ATO number you need
- Speak and Listen (speech-to-speech relay) users, phone 1300 555 727 and ask for the ATO number you need
- internet relay users, connect to the NRS on www.relayservice.com.au and ask for the ATO number you need.
Last Modified: Friday, 4 January 2013
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