If you don’t pay

Here are your options if you can't pay on time and what happens if you don’t pay your debt.

On this page

• What happens if you don't pay
• General interest charge
• Offsetting your credit or refund
• External debt collection agencies
• When we take stronger action
• When we take legal action

What happens if you don't pay

We know that taxpayers, in particular small business operators, sometimes have cash flow issues that mean they can’t pay their whole tax bill on time.

When a tax debt isn’t paid by the due date, engage with us early so we can help you deal with your debt while it’s still manageable. We’re committed to listening to your situation and helping you get back on track. We have tools and services available to support you.

If you don't pay your debts on time, we will:

• charge interest on your unpaid amounts
• contact you soon after the due date by one of the following methods
  • SMS
  • messages in myGov
  • letters
  • phone
   
• use any future refunds or credits to repay the amounts you owe.

We may take stronger action if you are unwilling to work with us to address your debt or repeatedly default on agreed payment plans.

Make sure you lodge your activity statements and tax returns on time even if you can't pay by the due date. You'll avoid a penalty for failing to lodge on time and we'll know you're aware of those obligations.

General interest charge

If you don't pay on time, we will automatically add a general interest charge (GIC) to what you owe. Your debt will grow each day your debt remains unpaid.

Interest calculates on a daily compounding basis on the amount outstanding and is added to your account periodically.

We revise GIC interest rates quarterly.

You can generally claim a tax deduction for interest charged in the year it's incurred.

Remission of interest

You can ask us to remit, such as reduce or cancel, some or all of your interest by:

• phoning us on 13 11 42 during operating hours – for interest charges up to $25,000
• writing to us at GPO Box 9990 in the capital city of your state or territory
• using a registered agent who can use Online services for agentsExternal Link.

Tell us why you think it is fair and reasonable for us to reduce or cancel your interest charges. Include the circumstances that led to your delay in payment and any steps you've taken to pay what you owe.

If your request is approved, you must include the amount of the remitted interest in your tax return as assessable income in the year it was remitted.

Offsetting your credit or refund

If you have a debt with us, including a debt on hold, we're required by law to use any credits or refunds you become entitled to, to pay off the debt. This is what we call offsetting.

There are limited circumstances in which we have the discretion not to offset. If you are in serious financial hardship, we may be able to pay the refund to you instead.

You can find out more in PS LA 2011/21 Offsetting of refunds and credits against taxation and other debts.

In some cases, we can also use credits you receive from other government agencies to pay off your debts.

In some circumstances, we are required to pay your refund to other Australian Government agencies if you owe them money. For example, if you have an overdue child support payment, part or all of your refund payment may be paid to Services Australia.

Once all your debts are paid, we'll refund any remaining credit to you.

An offset transaction can be found on your statement of account and in your Online services account with the description Offset.

External debt collection agencies

Previously we referred some debts to external debt collection agencies for collection on our behalf up to April 2020. Debt cases are currently no longer actioned by external debt collection agencies. However, we may do so for any in the future. Contact us directly on 1300 466 859.

When we take stronger action

We're committed to supporting taxpayers who want to do the right thing and preventing those who don't pay from gaining an unfair financial advantage. We use stronger action when people:

• are unwilling to work with us
• repeatedly default on agreed payment plans
• don't have the capacity to pay and don't take steps to resolve their situation
• have been subject to an audit where we detect deliberate avoidance and payment avoidance continues
• appear to be engaging in phoenix activities (using liquidation to avoid financial obligations without risking assets and with the intention of resuming business operations through a new entity).

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. This requires them to pay your money directly to us to reduce your debt. We'll send a copy of the notice to you.

For individuals, we may issue a garnishee notice to:

• your employer or contractor
• banks, financial institutions and building societies where you have accounts
• 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
• suppliers of merchant card facilities.

Director penalty notice

Directors can incur penalties equal to their company's

• unpaid PAYG withholding
• net GST (inclusive of luxury car tax and wine equalisation tax)
• super guarantee charge.

We may issue a director penalty notice enabling us to start legal proceedings to recover the penalty.

Direction to pay super guarantee charge (SGC)

We can issue employers with a direction to pay outstanding SGC (or estimates of SGC) within a specified period.

When an employer receives a direction to pay, they must ensure that they pay the full amount specified in the direction. A failure to comply with the direction is a criminal offence and can result in penalties or imprisonment.

Disclosure of business tax debt

If you have overdue tax debts and meet certain criteria, you may have your tax debt reported to registered credit reporting bureaus (CRBs). If you meet the eligibility criteria, we will send a Notice of intent to disclose that advises you of the relevant action to take.

If you're already engaged with us to manage your tax debts, the debts will not be reported to CRBs.

When we take legal action

In some cases, we may take legal action to recover outstanding tax and super debts. The action we take depends on whether an individual (or sole trader), partnership, trust, superannuation fund or company owes the debt.

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. Once the court recognises the debt owed, we may execute on the judgment debt in several ways, including by filing and serving a bankruptcy notice.

If the court imposes judgment debt interest, this amount is not tax deductible.

Bankruptcy notice

If you receive a bankruptcy notice, you need to pay your debt or make a payment plan with us within 21 days. If you're 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. When a person becomes bankrupt, the bankruptcy trustee takes possession of nearly all their assets and sells them to pay the person's debts.

We won't seek to bankrupt you if it is clear you're able to pay your debt in a reasonable time. If you're facing bankruptcy action, but believe you can pay your debts, you should provide us with clear evidence of your ability to pay.

You can go into bankruptcy voluntarily by filing a debtor's petition with the Australian Financial Security AuthorityExternal Link.

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 6 months.

If the sequestration order is made, you will become bankrupt and a trustee 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 you're able to immediately pay all your debts.

Statutory demand

We can issue a statutory demand for payment to a company that has not paid its debts. This requires the company to pay the entire debt or enter into a payment plan with us within 21 days.

If a company doesn't comply with the statutory demand, we may use the non-payment as evidence that the company is insolvent and apply to the Federal Court to wind up the company.

Wind-up action

When a court orders a company to wind up, an appointed official liquidator sells the company's assets and distributes the resulting funds to the company's creditors.

We'll take action to wind up a company if:

• it has failed to pay its debts
• we have not been able to negotiate a suitable payment plan.

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.