Updated 22 September 2026
An ATO tax debt does not always have to be paid in one lump sum.
If your business cannot pay a tax debt in full by the due date, an ATO payment plan may allow you to pay the amount over time. However, a payment plan does not remove the debt, and general interest charge can continue to accrue while amounts remain unpaid.
For business owners, the important issue is not simply whether a payment plan is available. You also need to understand what it will cost, what ongoing obligations continue, and whether the proposed repayments are realistic for the business’s cash flow.
Acting early can give you more time to understand the options before the debt becomes harder to manage.
Quick Summary
- An ATO payment plan allows eligible tax debt to be paid by instalments rather than as one lump sum.
- General interest charge generally continues to accrue on unpaid amounts while a payment plan is in place.
- From 1 July 2025, GIC and shortfall interest charge incurred on or after that date are no longer tax deductible.
- Eligible individuals and small businesses may be able to establish a payment plan online for debts up to $200,000.
- Businesses should keep lodging tax returns and activity statements on time even if they cannot pay the full amount.
- An ATO payment plan needs to be affordable enough to maintain while the business also meets new tax obligations.
- Missing agreed payments or new tax obligations can put a payment arrangement at risk.
- If an online plan is not available or appropriate, the business may need to contact the ATO to discuss its circumstances.
What Is an ATO Payment Plan?
An ATO payment plan is an arrangement to pay an existing tax debt over a period of time.
Instead of paying the full outstanding amount immediately, you make instalments under an agreed schedule.
The plan can cover eligible ATO debts, but the exact options depend on the taxpayer, the amount owed and the circumstances.
A payment plan changes the timing of payments. It does not cancel the underlying tax debt.
Who Can Set Up an ATO Payment Plan?
Individuals and businesses with an ATO debt may be able to request a payment plan.
According to current ATO guidance, individuals and small businesses with debts of $200,000 or less may be able to use ATO online services to propose a payment plan. Eligibility and the options presented through online services depend on the account and circumstances.
If the debt is larger, an online arrangement is not available, or the proposed plan cannot be accepted automatically, you may need to contact the ATO.
The ATO may ask for more information about the business’s financial position when considering a negotiated arrangement.
Does an ATO Payment Plan Stop Interest?
No.
General interest charge generally continues to accrue on unpaid tax liabilities, including amounts being paid under a payment plan.
This is important because the total cost of repaying the debt can be higher than the original outstanding balance.
The GIC rate changes quarterly. You can check the current general interest charge rate on the ATO website.
Is ATO General Interest Charge Tax Deductible?
Not for GIC incurred on or after 1 July 2025.
Changes to the tax law mean that general interest charge and shortfall interest charge incurred on or after 1 July 2025 are no longer deductible for income tax purposes.
This makes the cost of carrying ATO debt more significant than under the previous rules.
Older articles stating that ATO GIC is tax deductible may therefore be out of date when applied to interest incurred from 1 July 2025.
Should You Lodge Even If You Cannot Pay?
Yes. The ATO advises businesses to lodge activity statements and tax returns on time even if they cannot pay the full amount by the due date.
Lodging tells the ATO what is owed and helps keep the business’s reporting obligations current.
Delaying lodgements because the business cannot pay can create additional compliance problems and make it harder to understand the true size of the tax debt.
For a broader explanation of reporting obligations, see Cotchy’s BAS guide.
How Much Should You Offer to Pay?
There is no single repayment amount that suits every business.
A plan that looks affordable based only on today’s bank balance can become unmanageable when the next BAS, income tax payment or other tax obligation falls due.
Before proposing repayments, forecast the business’s expected cash inflows and outflows over the repayment period. Include both the existing debt and upcoming tax obligations.
A shorter payment plan may reduce the amount of GIC that accrues, but repayments still need to be sustainable.
Can the ATO Require an Upfront Payment?
Yes. Depending on the arrangement, the ATO may require or expect an upfront payment as part of a payment plan.
The amount can depend on the debt, the proposed repayment period and the taxpayer’s circumstances.
What Happens If You Miss an ATO Payment Plan Instalment?
Missing an agreed payment can put the arrangement at risk.
The ATO expects taxpayers to comply with the terms of the payment plan and keep other tax obligations current.
If the business knows it will struggle to make an upcoming payment, review the position and contact the ATO or your registered tax agent rather than simply missing the instalment.
Can You Have a Payment Plan and Still Lodge a BAS?
Yes. A payment plan for an existing debt does not remove the requirement to lodge future BAS and tax returns.
Keeping new obligations current is an important part of managing the arrangement.
A business that continues adding new tax debt while repaying old debt can end up with a payment plan that no longer reflects the true liability.
What If New ATO Debt Arises While You Are on a Payment Plan?
New tax liabilities still need to be dealt with.
Depending on the circumstances, new debt can affect an existing payment arrangement. This is why a payment plan should be built around a forward-looking cash-flow forecast rather than the existing debt alone.
Regular bookkeeping and tax reporting help identify upcoming liabilities before they become overdue.
Strong business record keeping makes it easier to identify what has been lodged, what remains payable and which tax obligations are approaching.
How ATO Payment Plans Affect Business Cash Flow
An ATO payment plan can ease the immediate pressure of a lump-sum tax debt, but it also creates a recurring cash commitment.
The business still needs enough cash to meet operating costs and new tax liabilities while paying down the old debt.
If a business repeatedly needs payment plans, the underlying issue may be broader than one tax bill. Pricing, margins, drawings, tax provisioning, bookkeeping delays or cash-flow systems may need to be reviewed.
Cotchy’s taxation services can help businesses understand their current tax obligations and the figures behind them.
Can the ATO Take Debt-Recovery Action?
Yes. A payment plan is one way of managing an ATO debt, but unpaid tax can still lead to debt-recovery action where obligations are not addressed.
The ATO has a range of debt-recovery powers and actions depending on the circumstances. These can include garnishee notices and, for companies with qualifying debts, director penalty notices.
If a company receives a director penalty notice or formal recovery action has commenced, obtain appropriate professional advice promptly.
Can the ATO Report Business Tax Debt to Credit Reporting Bureaus?
In some circumstances, yes.
The ATO can disclose business tax debt information to credit reporting bureaus where the statutory criteria are met. Not every overdue tax debt is reported.
This is another reason businesses should engage with outstanding tax debt rather than leave ATO correspondence unanswered.
What If the Business Cannot Afford a Payment Plan?
A payment plan is only useful if the business can realistically maintain it.
If the business cannot meet both a proposed payment plan and its ongoing obligations, simply stretching the debt over time may not solve the underlying problem.
For serious or persistent financial distress, businesses may also need legal, insolvency or restructuring advice outside the scope of ordinary tax return and bookkeeping work.
How Do You Set Up an ATO Payment Plan?
1. Confirm the amount owed
Confirm the ATO account balance and whether there are outstanding lodgements. Base the plan on the full known position rather than one isolated bill.
2. Work out what the business can realistically pay
Consider both an upfront payment and ongoing instalments after allowing for wages, suppliers, operating expenses and new tax obligations.
3. Use ATO online services if eligible
Eligible taxpayers may be able to propose a plan through ATO online services. For eligible small businesses, the current online debt limit is $200,000.
4. Contact the ATO if a standard online plan does not work
Where an online plan is unavailable or the business needs a different arrangement, the ATO may require direct contact and further financial information.
5. Keep up with the arrangement and new obligations
Make the agreed payments and continue dealing with new tax obligations as they arise.
Common ATO Payment Plan Mistakes
- Waiting until multiple lodgements and debts are overdue before acting.
- Assuming a payment plan stops GIC.
- Using an old article that says GIC remains tax deductible after 1 July 2025.
- Choosing repayments without forecasting upcoming BAS and tax liabilities.
- Missing new lodgement obligations because an old debt is already on a plan.
- Agreeing to instalments the business cannot realistically maintain.
- Ignoring ATO correspondence after a plan has been established.
- Treating repeated payment plans as a substitute for fixing an underlying cash-flow or tax-provisioning problem.
ATO Payment Plan Checklist for Businesses
- Confirm the total ATO debt.
- Check whether any BAS, tax returns or other lodgements are outstanding.
- Identify upcoming tax obligations during the proposed plan.
- Review current cash flow before deciding what repayments are affordable.
- Check whether online payment-plan options are available.
- Allow for GIC continuing to accrue.
- Remember that GIC incurred from 1 July 2025 is not tax deductible.
- Keep all future lodgements current.
- Make agreed payments on time.
- Review the arrangement early if the business’s financial position changes.
Frequently Asked Questions
Can a business set up an ATO payment plan?
Yes. Businesses with an ATO debt may be able to request a payment plan. Eligible small businesses with debts of $200,000 or less may be able to set one up through ATO online services.
Does an ATO payment plan stop interest?
No. General interest charge generally continues to accrue on unpaid tax debt while the payment plan is in place.
Is ATO general interest charge tax deductible?
GIC and shortfall interest charge incurred on or after 1 July 2025 are not tax deductible.
Should I lodge my BAS if I cannot pay it?
Yes. The ATO advises businesses to lodge on time even when they cannot pay the full amount. Payment difficulties can then be addressed separately.
How long can an ATO payment plan run for?
There is no single repayment period that applies to every taxpayer. The arrangement depends on the debt, available options and the taxpayer’s circumstances.
What happens if I miss a payment?
Missing an agreed instalment can put the arrangement at risk. Deal with the issue promptly if the business expects difficulty meeting a payment.
Can the ATO report tax debt to credit reporting bureaus?
The ATO can disclose eligible business tax debts to credit reporting bureaus where statutory criteria are met. Not every overdue debt qualifies for disclosure.
Deal With ATO Debt Before It Becomes Harder to Manage
ATO payment plans can give businesses time to repay tax debt, but they work best when the repayment schedule is based on current numbers and future obligations.
The existing debt, continuing GIC, upcoming BAS and tax liabilities all need to fit within the business’s cash flow.
Cotchy provides accounting, bookkeeping, BAS and taxation support for Australian businesses. If your business has an ATO debt, we can help you understand the tax position, bring reporting up to date and review the figures before an appropriate payment arrangement is considered.
Sources
ATO: Payment plans; ATO: Help with paying; ATO: General interest charge rates.
Information in this article is general in nature and is correct as at 22 September 2026. ATO payment-plan eligibility, interest and debt-recovery action depend on the taxpayer’s circumstances. Seek tax, legal or insolvency advice relevant to your circumstances where required.
