Now that the COVID-19 recession has largely passed, ATO debt collection action is expected to ramp up as debts hit a record high. Collectable debt owed to the ATO has peaked at $34 billon – the majority of which is owed by small business ($21bn).
The main point in letting an ATO debt accumulate and paying other debts off instead, is that the interest charged by the ATO (General Interest Charge GIC) is most likely higher than interest charged on any other debts that you or your business owe. GIC charged by the ATO is a uniform interest charge applied to unpaid tax liabilities. GIC compounds daily at the current rate of 7.02%.
The best way to stave off enforcement action from the ATO is to enter into a payment plan, enabling you to pay off your debt over a period of months and even years. Having entered into a payment plan, it’s important to meet its terms. Defaulting on a few scheduled instalments can mean that you are no longer eligible for the plan, and instead must pay the debt in full in a lump sum.
It’s also possible for your business to enter into an interest-free payment plan. Small businesses that owe Activity Statement amounts may be able to pay these off interest-free over 12 months. You may be eligible for an interest-free payment plan if your business:
- has an annual turnover of less than $2 million
- has recent amounts owed from an activity statement of $50,000 or less that has been overdue for no longer than 12 months
- has good payment and lodgement history including:
- no more than one payment plan default within the last 12 months
- no outstanding activity statement lodgements
- is unable to obtain finance (such as a loan) through normal business channels
- is able to demonstrate ongoing viability.
If you or your business has an ATO debt, it’s best to get on top of it before enforcement action ramps up. Speak to us about entering into a payment plan today.