Tax Debt

The Tax Office has well developed policies for handling the payment of tax debts which are overdue. However with discretion in the hands of individual tax officers, implementation of debt collection processes can be inconsistent, so it is important to research available debt management options carefully.

Debt negotiations can be lop-sided, with a taxpayer induced to agree to terms under threat of penalty. Demands for a 50% tax payment up front as a condition of a repayment agreement are not uncommon, with stronger action to follow if terms are not fully met.

See the calculation of penalties here..

The general receivables management policy has negotiation as a core element, however Government budgetary commitments reinforced by politics mean that Treasury and the Tax Office are normally under pressure to collect money.

Natural disasters

For those affected by natural disasters, help is available which may include time to lodge and pay, remission of penalties and speeding up tax refunds.

See People affected by natural disasters

Serious Hardship

The Tax Office can fully or partially wipe a tax debt under the serious hardship provisions for individuals, but not companies, trusts or other non-individual entities.

Release of a tax debt requires:

• the submission of financial information, including income and assets, demonstrating an inability to afford the normal family necessities of life, which include food, housing, medical treatment and education.
• all relevant returns lodged up to date

There are some tax debts (such as GST and PAYG withholdings) which cannot be released.

The bar is set quite high for hardship grounds. Here is case in which the taxpayers were partially successful after experiencing substantial misfortune through events outside their control. The taxpayers were a retired couple, formerly owners of a small business for over 50 years.

See Smith and Commissioner of Taxation (Taxation) [2021] AATA 1851 (14 May 2021)

See ATO policy description in detail: Release on grounds of hardship

Negotiated debt repayment plans

The first step in a tax debt negotiation will depend on the size and nature of the debt. For debts over $100,000, a phone call is the starting point.

Debts below $100,000

Payment arrangements can be set up online (via myGov) or via an automated telephone application service for debts below $100,000.

For further information see: Payment arrangements for debts less than $100,000

Unpaid Debts -the Big Stick

If for some reason you have not been able to comply with a repayment agreement, the ATO’s position is that “firmer action” is justified. This may include legal action.

For further information see “Stronger measures“

As with all matters involving the repayment of debt, early action or intervention is strongly advised, in order to minimise the impact of unmet commitments and accumulated penalties.

Disputed Tax Debts

The general position is that the Tax Office requires taxpayers to pay at least 50% of a disputed debt immediately or else provide security for the payment of the entire debt.

For further information see: Avoiding and resolving disputes and PS LA 2011/4 Recovering disputed debts

See also

• ATO policy on settlements PS LA 2015/1
• PS LA 2011/12 – Remission of GIC policy

This page was last modified 2021-06-28