Key points
- Interest keeps running on a payment plan, at around 11% a year, compounding daily.
- Missing an instalment or a new lodgement can see the plan cancelled and firmer action start.
- Call the ATO early, keep lodging, and compare the cost of finance against the plan.
An ATO payment plan lets a business pay a tax debt in instalments instead of in one go. For many owners it's the first sensible step when a BAS or tax bill can't be paid on time. The plan only holds while you keep to it, though, and the consequences of a missed payment are worth understanding before it happens.
How ATO payment plans work
You agree to pay the debt in regular instalments, usually weekly, fortnightly or monthly. Smaller debts can often be set up through the ATO's online services. Larger debts, or plans that need a longer term, usually need a conversation with the ATO, sometimes with evidence of what the business can afford.
Two conditions apply to almost every plan. First, the general interest charge (GIC) keeps accruing on the outstanding balance. Second, you must lodge and pay new obligations on time while the plan runs. A plan for last year's BAS doesn't cover this quarter's.
What the plan really costs
GIC is set each quarter at the 90-day bank bill rate plus 7 percentage points, and it compounds daily. It has been sitting at around 11% a year. Since 1 July 2025, GIC is no longer tax-deductible, so the after-tax cost of carrying ATO debt has gone up for every business that used to claim it.
On a $150,000 debt cleared evenly over two years, GIC adds roughly $17,000 to $18,000 in interest, none of it deductible. That figure is the benchmark any alternative needs to beat.
Illustration only, assuming GIC of about 11% and even monthly instalments.
What happens when you miss an instalment
A single missed payment doesn't always end the plan, especially if you contact the ATO quickly. But a plan can be cancelled if instalments are missed, if new lodgements are late, or if new debts build up on top of it. Once a plan is cancelled, the full balance becomes due and the ATO can move to firmer action.
That action can include:
- Offsetting refunds and credits against the debt.
- Garnishee notices requiring your bank, customers or others who owe you money to pay the ATO directly. See our guide to garnishee notices.
- Director penalty notices, which can make directors personally liable for certain company debts. See our guide to DPNs.
- Reporting the debt to credit reporting bureaus in some circumstances, which can affect the business's ability to borrow and trade on credit.
- Legal recovery action, including court proceedings.
Small business collectable debt reached $35.9 billion at 30 June 2025, and the Auditor-General's 2026 report found it likely to stay above the ATO's tolerance for another one to two years. Firmer collection is part of the ATO's response.
Your options after a default
1. Contact the ATO straight away
The ATO generally responds better to businesses that engage early. If the miss was a one-off, you may be able to catch up or adjust the plan. If the business can't keep up at all, a realistic revised plan is better than silence.
2. Get your lodgements up to date
Overdue lodgements weaken every option, from renegotiating with the ATO to applying for finance. Most lenders won't fund a tax debt until BAS and returns are lodged.
3. Pay the debt in full with finance
A business loan clears the ATO in one payment and replaces GIC with a fixed repayment schedule. Depending on the size of the debt and your circumstances, that might be an unsecured business loan or a loan secured against property, such as a caveat loan that can settle within days. Business loan interest is generally deductible when the loan is used for a business purpose such as paying a business tax debt. Ask your accountant to confirm for your situation.
4. Talk to an adviser if the debt can't be repaid
If the business can't realistically pay the debt by any route, speak to your accountant or a registered insolvency practitioner. Borrowing to delay an insolvency usually makes it worse.
Questions to ask before you choose
- What's the total cost of the plan in GIC compared with the total cost of a loan, including fees?
- Can the business carry the loan repayment as well as current tax obligations?
- Is the debt a one-off, or a sign the business keeps falling behind?
- Has the ATO already issued a garnishee notice or DPN? If so, timing matters.
Sources
General information only. It doesn't take your circumstances into account and isn't tax, legal or financial advice. Speak to your accountant or a lawyer about your situation.