How to Manage Your Tax Debt: ATO Payment Plans, Transfers & Compromise

Falling behind on ATO obligations can be stressful—but the ATO offers a range of support options to help you stay on track. Below is a comprehensive guide to setting up payment plans, managing payments and, in limited circumstances, compromising tax debts.

1. Payment Plans

If you can’t pay your debt in full by the due date, you can apply for a payment plan that breaks your liability into manageable installments.

Who’s eligible: Individuals, sole traders, companies and other entities with ATO debts up to $100,000 can apply online; higher amounts require phone application. :contentReference[oaicite:0]{index=0}
How it works: The ATO’s online system suggests an upfront payment and installment amounts based on similar taxpayers’ experiences. You can adjust these within set limits to suit your cash flow. :contentReference[oaicite:1]{index=1}
Interest & penalties: You’ll continue to accrue interest (the general interest charge) on the outstanding balance, but a payment plan can reduce penalty interest and avoid default. :contentReference[oaicite:2]{index=2}
Setting up:
- Online via your myGov/ATO Online Services portal
- By phone on 13 28 66
- Through your registered tax or BAS agent

2. Managing Payments & Prepayments

In addition to standard payment plans, the ATO provides tools to help you manage cash flow and prevent future debts:

Prepayments: You can make voluntary prepayments toward upcoming liabilities (e.g. PAYG instalments or GST). This reduces later payment demands and interest charges. :contentReference[oaicite:3]{index=3}
Payment transfers: If you have multiple ATO debts (e.g. income tax, BAS, HECS), you can request to transfer credits or prepayments across these debts via ATO Online Services. :contentReference[oaicite:4]{index=4}
Preventing debt: Regularly review your tax obligations, lodge returns on time, and consider voluntary installments if you expect a large liability. :contentReference[oaicite:5]{index=5}

3. Compromise of Tax Debt

In very limited cases, the ATO may agree to accept a lesser amount to settle an undisputed tax debt—this is known as a compromise.

Eligibility:
- The debt must be undisputed and all lodgments must be up to date.
- You must demonstrate that full payment would cause financial hardship or that recovery of the full amount is impractical.
How to apply:
1. Gather documentation showing your income, assets, liabilities and expenses.
2. Complete ATO’s application for a compromise of tax debt (use the form on the ATO website).
3. Submit supporting evidence (e.g. financial statements, cash-flow forecasts).
Limitations:
- The ATO will not accept a compromise that offers less than your net realizable assets.
- Compromises are rare and assessed against strict policy guidelines. :contentReference[oaicite:6]{index=6}

4. Key Tips for Success

Act early: Contact the ATO as soon as you foresee difficulty—early engagement can preserve your options.
Keep records: Maintain up-to-date financial statements, bank records and correspondence with the ATO.
Seek advice: Consider engaging a tax professional or financial counselor for complex situations or large debts.
Monitor your plan: If your circumstances change, you can vary your payment plan online or by phone.

For detailed information and to apply online, visit the ATO’s Payment Plans, Managing Payments and Compromise of Tax Debt pages on the ATO website.

How to Manage Your Tax Debt: ATO Payment Plans, Transfers & Compromise