If you can’t pay an ATO debt then you can seek to enter into a payment arrangement with the ATO. This can be done for both company and personal tax debts.
What are the benefits of ATO payment arrangements?
The obvious benefit of a payment arrangement is that it gives you time to pay an ATO debt. Most likely in circumstances where the debt cannot be paid in full. However, another benefit is that the ATO will not take recovery action whilst a payment arrangement is in place. This includes issuing Director Penalty Notices or Garnishee Notices.
When will the ATO refuse to enter into a payment arrangement?
The ATO will often enter into payment arrangements to allow debts to be able to be paid overtime. However, sometimes they will refuse a payment arrangement because:
- The proposed payment arrangement is for too long a period; or
- The taxpayer has a poor compliance history; or
- The tax debt owed is too large; or
- The ATO doesn’t believe the taxpayer has the ability to comply with the payment arrangement.
What can you do if the ATO refuses a payment arrangement?
If the ATO refuses your proposal for a payment arrangement then you can amend the proposal. This could include offering a larger amount up front, or increasing instalments payable so the ATO debt is paid off quicker.
One other option is to offer the ATO security over an asset. This may be an asset owned by the entity which owes the tax debt or an asset of a third party, such as a company director giving the ATO a mortgage over their property.
How does the ATO take security?
The ATO will either ask you to provide security or you can offer it. The most common forms of security which the ATO will take are mortgages. This is usually:
- A mortgage over a taxpayer’s property where the taxpayer owns a personal tax debt but owns a property in their name; or
- A mortgage over a director’s property where a company owes a tax debt. In these circumstances the ATO will also obtain a guarantee from the company’s director for part or all of the tax debt owed.
What are the risks?
If you grant the ATO security over an asset then they become a secured creditor. This means if you don’t pay the ATO’s debt then they can take action to sell any assets they have security over.
There is a further significant risk for directors guaranteeing company tax debts and giving mortgages over their properties. A director is ordinarily not liable for a company tax debt, other than through the ATO’s Director Penalty Notice provisions. If you are guaranteeing a company tax debt you need to be certain that your company can pay it, as if it doesn’t then you will lose your personal assets.
What should you do?
Before entering into any payment arrangement with the ATO, which grants the ATO security, you should get professional advice. It may be the case that a payment arrangement with security is an appropriate solution but it also may be the case that it is not and it will cause significant problems down the track.
Contact us for assistance
We are happy to talk to you about your tax debt problems, including whether or not granting security for an ATO payment arrangement may be an option.