What happens if my business can't pay the ATO?

If your business can’t pay a tax bill on time, the ATO’s message is to contact it as soon as possible. The earlier you engage, the more options you have. If you don’t engage, the debt grows with interest and the ATO can escalate its recovery action.

First steps

Keep lodging on time

Lodge your BAS and other returns by the due date even if you can’t pay. The ATO says lodging on time means your information is up to date and gives you certainty about the amount you need to pay. It also matters for other reasons:

• the ATO can charge failure to lodge penalties for late lodgement
• ATO payment plans require you to lodge all your obligations on time
• for company directors, reporting PAYG withholding and GST within 3 months of the due date keeps more options open if a director penalty notice is issued.

See overdue BAS if you are already behind.

Contact the ATO early

If you can’t lodge on time, the ATO asks you to phone it before the due date so it can work with you to reduce the risk of a penalty. The ATO’s lodge and pay enquiry line is 13 11 42. Your registered tax or BAS agent can also contact the ATO for you.

Set up a payment plan

A payment plan lets you pay what you owe in instalments. The ATO says you may be able to set one up yourself online or through its self-help phone line if you owe $200,000 or less. Our guide to ATO payment plans for business explains how.

Step by step

1. Lodge everything that is due, even if you can’t pay it.
2. Work out what you owe using your ATO account or with your registered tax or BAS agent.
3. Work out what you can afford to pay each week, fortnight or month without falling behind on new obligations.
4. Contact the ATO before the due date, or ask your agent to, and set up a payment plan.
5. Pay new debts on time. The ATO says you must pay any new tax debts in full and on time, or set up a separate plan for them.
6. Respond to every ATO letter. Engaging with the ATO is what keeps the debt away from firmer action.
7. Get free help if you need it. The Small Business Debt Helpline (1800 413 828) is a free, independent and confidential service for small businesses struggling with their finances.

Interest: the general interest charge (GIC)

The ATO applies the general interest charge (GIC) to unpaid amounts after the due date. GIC compounds daily, and tax debts on a payment plan continue to accrue it. The longer you take to pay, the more interest you pay.

The ATO updates the GIC rate quarterly and generally announces the next quarter’s rate 2 weeks before the quarter starts. Check the ATO’s GIC rates page for the current rate.

GIC is no longer tax deductible. The ATO says any GIC or shortfall interest charge (SIC) incurred on or after 1 July 2025 is not deductible, regardless of whether the debt relates to an earlier income year.

You can ask the ATO to remit (reduce or cancel) GIC. The ATO says businesses can request this through Online services for business, by phone or by mail, and should explain their circumstances and provide supporting evidence. Your registered tax or BAS agent can also request it for you.

Other ATO options

• Interest-free payment plans. The ATO offers these to some small businesses with activity statement debts. The criteria include annual turnover of less than $2 million, recent activity statement debts of $50,000 or less that have been overdue for up to 12 months, a good payment and lodgement history, being unable to get finance through normal business channels, and being able to show ongoing viability. GIC is still charged but is automatically remitted if you keep to the plan.
• Secured payment plans. If the ATO can’t reach agreement with you, it may consider security, such as a registered mortgage over freehold property or an unconditional bank guarantee from an Australian bank.
• Compromise of a tax debt. In limited cases the ATO may accept a lesser amount to settle an undisputed tax debt. The ATO says it first considers other options, such as payment arrangements.

What happens if the debt isn’t dealt with

The ATO says it is more likely to start firmer action if you refuse to engage, ignore reminders, default on payment plans or leave GST, PAYG withholding or employee super unpaid. The main steps are below.

Director penalty notices

For companies, the ATO can make directors personally liable for unpaid PAYG withholding, GST and super guarantee charge. It must first issue a director penalty notice (DPN). See what is a director penalty notice.

Garnishee notices

A garnishee notice requires a third party that owes you money, or holds money for you, to pay it to the ATO instead. For businesses, the ATO lists banks and other financial institutions, trade debtors and merchant card facility providers. The third party is legally required to follow the notice. You receive a copy. The ATO says you may be able to negotiate to have a notice withdrawn or varied if you make suitable alternative payment arrangements.

Credit reporting of business tax debt

The ATO may report your business tax debt to registered credit reporting bureaus if all of these apply:

• you have an ABN and are not an excluded entity (such as a registered charity or a complying super fund)
• at least $100,000 of your tax debt is overdue by more than 90 days
• you are not engaging with the ATO to manage the debt
• you don’t have an active complaint with the Tax Ombudsman about the ATO’s intention to report.

The ATO sends a notice first. You have 28 days from receiving it to take action. Engaging with the ATO, for example by entering into and keeping to a payment plan, means the debt won’t be reported. If it is reported, the ATO says it will be removed once you pay in full or engage with the ATO to manage it.

Legal action

If you remain disengaged, the ATO says it may start legal action. For companies, this can include a statutory demand requiring the company to pay the whole debt or enter a payment plan within 21 days, and then an application to wind up the company. For individuals, including sole traders, it can include a bankruptcy notice. The ATO says it won’t seek to bankrupt you if it is clear you are able to pay your debt. See what is a statutory demand and what is a winding up application.

Other actions

The ATO can also issue employers with a direction to pay overdue super guarantee charge, and failing to comply is a criminal offence. In some cases it can issue a departure prohibition order preventing a person with a tax debt from leaving Australia.

Refinancing tax debt

Some businesses refinance tax debt with a lender instead of, or as well as, using an ATO payment plan. This is a separate decision with its own costs and risks, and it doesn’t suit every business. Our guide to using business finance to pay ATO debt explains how businesses compare the two. Talk to your accountant or registered tax agent first.

Important things to know

• Silence makes it worse. The ATO says it is more likely to take firmer action when you don’t engage or ignore reminders.
• A payment plan can default. If a plan defaults, the ATO says the whole overdue balance becomes immediately payable and it may take firmer action.
• Interest keeps building. GIC compounds daily, including while you are on a plan, and it is not deductible.
• Super and withholding carry personal risk. For company directors, unpaid PAYG withholding, GST and super guarantee charge can become a personal debt.
• Get advice early. Talk to your accountant or registered tax agent about your situation. If the business may be insolvent, speak with a registered liquidator.