Having a tax debt can be stressful. But there are proactive things you can do to ensure that you handle your tax debt in a way that will keep you out of hot water with the Australian Taxation Office (ATO).
1. Know where you stand
Putting your head in the sand is the wrong thing to do. You need to be proactive and understand exactly what is outstanding and when it is due. Having a debt with the ATO can be damaging to your credit rating. The ATO have powers in Australia that can allow them to withdraw money from your bank account, or have your debtors pay them instead of you. If this happens it may catch you completely off guard and leave you with even bigger problems. So make sure you are very clear on what you owe, to whom and by when.
2. Payment Plan
The ATO understand that you may not be able to pay the full amount up front. Proving you are proactive, they are very happy to work with you on a payment plan. They just want to make sure that they are getting paid, even if it is over a longer period of time. However, the most important thing to remember about a payment plan is that once you have agreed on it you must adhere to it. Always ensure that your payments are made on time otherwise you could find yourself with significant penalties. Failure to comply with a payment plan may also mean that you aren’t eligible for a payment plan in the future.
3. Negotiate your penalties
The ATO will favour those that have acted early and who have been proactive, rather than ignoring a debt or allowing it to get larger. The best thing you can do is show initiative and a desire to work with the ATO on resolving the issue. In return the ATO may be willing to negotiate your penalties. Being proactive and willing to co-operate will never lead to higher penalties. However, ignoring the problem will definitely not lead to reduced penalties. So whatever you do, be proactive and work with the ATO to develop a plan that will work for you both.
4. Other options
There are other options available to consider where appropriate. In some circumstances you can be released from your tax debt, where payment of that debt would result in significant financial hardship and unable to provide food or accommodation for yourself or your family. You would need to apply to the ATO if you thought this might apply.
Where you have been affected by a natural disaster such as a bushfire, storm or flood the ATO will help you to sort out your tax affairs when you are ready.
As a small business if you have activity statement debt, you may be able to pay this off interest-free over 12 months. This is providing you have a good history of tax lodgements and payments.
The ATO can be easy or difficult to work with, the choice is yours. No matter what, make sure you are proactive and if in doubt about what you need to do regarding your tax or any liability chat to your tax accountant.