Hey there, small business owner!🌞 Managing tax debt can feel overwhelming at times, but the good news is the Australian Taxation Office (ATO) offers plenty of options to help you get back on track. Let’s dive into the different ways you can tackle tax debt without losing sleep.

💡Need to Push Back Your Payment? Try Deferring!

Cash flow hiccups happen - we’ve all been there. The ATO understands that running a small business comes with ups and downs, and if you're experiencing temporary financial difficulties, they may allow you to defer a payment.

If you’re struggling to meet an upcoming lodgement or payment deadline, the ATO may grant an extension to help you manage your cash flow.

What Can You Request a Deferral For?

Lodgement deferral – If you need more time to lodge your BAS, tax return, or other ATO forms.
Payment deferral – If you can’t pay on time but expect to clear the amount later.

How to Request a Deferral

1. Lodgement Deferral (Extra Time to Lodge)

If cash flow issues or unexpected circumstances have delayed your ability to lodge your BAS, tax return, or other reports:

Your registered Tax or BAS agent can apply for a deferral on your behalf.

If you don’t use an agent, you may still be able to request an extension by calling the ATO or applying online.

The ATO considers factors like illness, system outages, or financial hardship.

2. Payment Deferral (Extra Time to Pay)

If you need more time to pay? You (or your tax agent) can request a new due date for your payment.

How to apply:

Online via your ATO Business Portal.
Over the phone by calling the ATO at 13 11 42.
Through your tax agent, who can make the request for you.

If you’re experiencing serious financial hardship, the ATO might also reduce or waive interest charges.

What If You Can’t Pay Even After a Deferral?

Consider a payment plan – The ATO allows businesses to set up payment instalments instead of paying in one lump sum.
Check for remission of penalties – If you’ve been charged interest, you can ask the ATO to reduce or remove it.

Find more info on deferring payments.

📊Let’s Talk Payment Plans

So, you’re looking at a tax bill that you can’t pay in full right now. Don’t stress—the ATO offers payment plans to help you spread out repayments in a way that works for your cash flow.

What Is a Payment Plan?

A payment plan allows you to:

Break Down Your Debt: Divide your tax debt into smaller, more manageable amounts.
Flexible Payments: Make payments weekly, fortnightly, or monthly until the debt is cleared.

How to Set Up a Payment Plan

Assess Your Financial Situation:
- Determine What You Can Pay Now: Making an upfront payment can reduce the interest you'll accrue.
- Calculate Affordable Instalments: Use the ATO's Payment Plan Estimator to figure out a payment schedule that suits your budget.
Set Up the Plan:
- Online:
  - For Individuals and Sole Traders: Log in to your myGov account linked to the ATO.
  - For Businesses: Access the Online Services for Business portal.
  - Steps:
    Navigate to 'Accounts and Payments'.
    Select 'Payment Plans'.
    Follow the prompts to set up your plan.
- By Phone:
  - If you owe $200,000 or less, call the ATO's automated service with your Tax File Number (TFN) or Australian Business Number (ABN) and the amount you owe.
- Through a Tax Agent:
  - A registered Tax or BAS agent can set up a payment plan on your behalf.
If You Owe More Than $200,000:
- Contact the ATO directly during business hours to discuss your options. Be prepared to provide details about your financial situation, including income, expenses, assets, and bank account balances.

Important Considerations

Interest Charges: General Interest Charges (GIC) will continue to accrue on your outstanding debt, compounding daily. Paying off your debt sooner will minimize the interest you pay.
Stay Compliant: Ensure you continue to lodge all tax returns and activity statements on time, even while on a payment plan.
Regular Payments: Stick to your agreed payment schedule to avoid defaulting on the plan.
Additional Payments: You can make extra payments or pay off the debt in full at any time.

Check out the details on payment plans here.

📈ATO Interest Charges: Can You Get Them Reduced or Cancelled?

If you've been hit with interest charges from the ATO, there’s a chance you could have them reduced or even cancelled through a process called remission.

Here’s an easy guide to help you understand how it works and what steps you can take:

Why Does the ATO Charge Interest?

The ATO imposes interest to:

Encourage Timely Payments: Ensuring taxes are paid on time.
Maintain Fairness: Preventing late payers from gaining an advantage over those who pay promptly.
Compensate for Delays: Covering costs associated with late payments.

Types of Interest Charges

General Interest Charge (GIC):
- When It Applies: If you have unpaid tax after the due date.
- Common Scenarios:
  - Amendments increasing your tax liability.
  - Underestimating tax instalments.
  - Late lodgement of returns.
Shortfall Interest Charge (SIC):
- When It Applies: When there's a discrepancy between the tax you initially reported and the correct amount, often identified after an ATO review.
- SIC is typically lower than GIC, acknowledging that taxpayers might be unaware of shortfalls until notified.

How to Request Remission

Prepare Your Explanation:
- Detail the Circumstances: Clearly explain what led to the late payment or shortfall.
- Provide Supporting Evidence: Gather any documents that back up your claims.
Submit Your Request:
- Online: Use the ATO's online services for businesses or agents.
- By Mail:
  - Include your full name, contact details, Tax File Number (TFN) or Australian Business Number (ABN), and any relevant reference numbers.
  - Send to:
    Australian Taxation Office
    PO Box 327
    ALBURY NSW 2640
Await the ATO's Decision:
- The ATO will review your request and inform you of their decision.
- If they decline your request, they'll provide reasons for their decision.

Check out more details on ATO Interest remission.

💰Debt Compromises

If you’re struggling with an undisputed tax debt and can’t afford to pay the full amount, the ATO may offer a Compromise of Tax Debt - essentially allowing you to settle for less than what you owe.

But it’s not as simple as just asking for a discount.

What is ATO Debt Compromise?

It’s a formal agreement where the ATO accepts a reduced payment and won’t chase the remaining balance.
Only available in exceptional circumstances—not just because you’re short on cash.
The ATO assesses your financial position, including assets, income, and ability to pay over a specified time.

What Are Your Options?

Before requesting a compromise, the ATO expects you to have explored other solutions:

Payment plans – Flexible instalment options to spread out the debt.
Remission of penalties & interest – In some cases, the ATO may waive extra charges.
Serious hardship considerations – If paying your debt would leave you unable to afford basic living expenses.

How to Apply?

Be prepared to prove you can’t pay the full amount now or in the future.
Submit a formal request, including details of your finances and efforts to repay.
The ATO will assess your situation and may negotiate the amount they’re willing to accept.

This isn’t a quick fix, but if you’re in genuine financial distress, it might be an option worth exploring.

Check out the full details on the ATO website: ATO Debt Compromise.

🤷‍♂️Thinking of Restructuring? There’s a Rollover for That

If your business needs to restructure for financial survival, the Small Business Restructure Rollover (SBRR) could be a great option. This allows eligible small businesses to transfer active assets from one entity to another without triggering an immediate tax bill.

It’s a smart way to adapt and reorganise without the added stress of upfront tax costs. If this sounds like something that could work for you, it’s worth looking into

Eligibility Criteria:

Aggregated Turnover: Less than $10 million.
Genuine Restructure: The transfer must be part of a genuine restructure of an ongoing business, not driven by tax avoidance motives.
Ultimate Economic Ownership: The transaction should not change the ultimate economic ownership of the assets.

For detailed information, visit the ATO's guide on the Small Business Restructure Roll-Over.

Small Business Restructuring Process

Introduced in 2021, this process allows financially distressed small businesses to restructure their debts while remaining in control of their operations.

Key Features:

Companies with no more than $1 million in total liabilities.
Directors remain in control during the restructuring.
A registered practitioner will be appointed to assist in developing a restructuring plan.

This process aims to provide a streamlined and cost-effective pathway for small businesses to address financial difficulties.

Considerations

Engaging with financial advisors or restructuring practitioners is crucial to navigate the complexities of restructuring.
Maintaining up-to-date tax lodgements and employee entitlements is essential for eligibility.
Assess the long-term viability of the business post-restructure to ensure sustainable operations.

However, if restructuring isn’t feasible, perhaps because the debts are too high or cash flow can’t support a repayment plan, the next step may be a formal insolvency process, such as voluntary administration or liquidation.

For more information see the New insolvency reforms to support small business

What If Things Get Really Serious? Insolvency Options

If your business is having trouble paying its debts and you're feeling overwhelmed, don’t panic - insolvency doesn’t always mean the end. There are options that can help you recover or wind down smoothly. However, it’s a complex process, so make sure to get professional advice to guide you through.

🤔Are You Insolvent?

If you can’t pay debts when they’re due, it’s time to act. Acting early can make a big difference. Here’s what you can consider:

Talk to Your Creditors
Before jumping into formal processes, try negotiating payment plans with suppliers or the ATO. Many are open to arrangements if they see you’re making an effort.

Voluntary Administration
A specialist takes control of your business to explore if it can be saved, sold, or if liquidation is necessary. This gives you breathing room to assess the best path forward.

Liquidation
If the business isn’t viable, liquidation winds things down by selling assets to repay debts, preventing further financial stress.

Bankruptcy (For Sole Traders & Partnerships)
This clears most unsecured debts but lasts three years and has lasting financial effects. It’s an option when personal liability is involved.

What’s Next? Get Expert Help

Insolvency can be complex, so speaking to an accountant or insolvency expert can help you find the best solution while minimising the impact. You don’t have to navigate this alone.

🤔Ways the ATO Can Help

If your financial situation feels like it’s spiralling, don’t panic. Life can throw unexpected challenges your way, making it difficult to manage tax and super obligations. The ATO understands and offers support to help you stay on track. Here are some ways they can assist.

✅Mental Health and Wellbeing

Your mental health is crucial, and the ATO recognizes its impact on your financial responsibilities. If you're struggling:

Difficulty Paying Tax: Reach out early to discuss options like payment plans or deferrals.
Immediate Support: Contact Beyond Blue at 1300 224 636 or Lifeline at 13 11 14 for mental health assistance.

✅Family and Domestic Violence

Safety and confidentiality are paramount. If you're experiencing family or domestic violence:

Identity Verification: The ATO can assist in reconstructing lost or damaged records.
Financial Support: Options like tailored payment plans are available to manage any outstanding tax debts.
Counselling Services: Contact 1800 RESPECT at 1800 737 732 or visit White Ribbon Australia for support.

✅Serious Financial Hardship

When basic necessities become unaffordable due to unforeseen circumstances:

Priority Processing: The ATO can expedite your tax return to provide quicker access to refunds.
Debt Relief: In cases of serious hardship, you might be eligible for release from some or all of your tax debt.

✅Dealing with a Deceased Estate

Managing the tax affairs of a loved one who has passed away can be complex:

Guidance: The ATO provides information to help legal personal representatives manage the deceased person's tax obligations.

Remember, you're not alone. Discover support options here.

💪You’ve got this!

Remember, you’re not alone in this, many small business owners face tax debt at some point. The main thing to keep in mind is that if cash flow is tight, don’t ignore your tax debt - the sooner you act, the more flexible the ATO can be.

The ATO has support options in place to help you through, so the key is to be proactive and stay transparent. And if you ever feel like you need help (or even if you don’t but just want to talk it out), don’t hesitate to reach out. Sometimes, sharing the load can make all the difference. 💙

Tax Debt Management: Understanding Your ATO Options as a Small Business Owner