It is very common for a company that is facing insolvency to become slow in paying its tax liabilities. Typically, the tax man is one of the first creditors that a company that is financially distressed ceases to pay. The ATO has quite specific guidelines for its staff that create policies and procedures in dealing with companies that are late in paying tax debts. The only trick is that these policies change over time and different officers may apply their discretions differently.
In general, we have found the ATO to be quite reasonable in its dealings with taxpayers who are struggling to pay their tax debts. In the past, the ATO has been very generous in the Payment Arrangements it will agree to. By way of example, after the Global Financial Crisis in 2008 the ATO was very willing to allow taxpayers to enter Payment Arrangements of up to 2 years with no interest payable. Those were terms that were very generous – try getting a similar deal from your bank or any other creditor!
However, the Payment Arrangements that the ATO will now enter are much more restrictive.
If a taxpayer is unable to pay a tax debt on time they should certainly telephone the ATO and discuss what payment arrangements are possible. At the least, it is common to be able to obtain Payment Arrangements of at least two or three months, again with no interest being applicable.
But beware! Whilst the ATO will be understanding the first time it is necessary for you to enter a Payment Arrangement, it will be much less understanding if you default upon the agreed payment dates. For a start, it will be a standard term of the agreement that if a payment is made late then all future payments become immediately due and payable. Further, you will need to lodge returns and pay on time for any new tax obligations falling due while the payment arrangement is in place for old debts. Also, it is likely that if you default on a payment arrangement, the matter will be referred to the enforcement division and your company will be put on the “railway tracks” of the enforcement process. That is, the ATO will simply apply its processes and procedures in pursuit of the outstanding debt and there will be little if any further negotiation. After one default it is highly unlikely the ATO will agree to a further Payment Arrangement.
If the above advice has not answered your questions you might want to review the following pages and downloadable Information Sheets:
Or please call us for free advice.
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