If you have fallen behind with your tax obligations, you may seek to enter into a payment arrangement with the ATO. We have previously written about how we have helped our clients negotiate payment arrangements including here and here. And about how we have helped clients renegotiate existing payment arrangements here and here.
Payment arrangements can be requested by both individuals and companies.
Why seek to enter into payment arrangements with the ATO?
If you have been racking up tax debt, chances are that you do not have enough cash flow to pay off the debt. Entering into a payment arrangement will allow you or your business more time to pay off your ATO debt, by instalments.
Another benefit is that it stops the ATO from taking recovery action against you or your company. Recovery actions taken by the ATO include issuing director penalty notices, issuing garnishee notices, and even bankrupting you or liquidating your company.
Will the ATO refuse to enter into a payment arrangement?
The ATO quite often enters into payment arrangements to allow taxpayers to pay over time. There are however, instances where the ATO has refused to enter into a payment arrangement. The reasons are usually that:
- The taxpayer has a poor compliance history;
- The proposed payment period is for too long a period;
- The tax debt owed is too large; or
- The ATO believes that the taxpayer does not have the ability to comply with the payment arrangement.
What can be done if the ATO refuses a payment arrangement?
There is nothing to stop you from proposing another payment arrangement if the ATO rejects the first one. You may, for example, offer a larger upfront payment or shorten the payment period by increasing the amount of instalments. Another option is to offer the ATO security over an asset. The asset can be owned by the taxpayer or a third party standing in as a guarantor for the debtor. For example, a director or shareholder offering an asset as security for payment of a company’s tax debt.
How does the ATO take security?
The ATO will, at times, request that you provide security. Even if no request is made, you can offer to provide security. The most common security that the ATO will take are mortgages. Examples are:
- A mortgage over the property of a taxpayer; or
- A mortgage over a third party’s property such as a director’s or shareholder’s property. In these circumstances the ATO will also require that the third party provides a personal guarantee for the debt owed by the company.
What are the risks?
When security is granted to the ATO over an asset, the ATO becomes a secured creditor. When a payment arrangement is not complied with, the ATO can take action to sell the asset they have security over. This can include appointing a third party to sell any real property over which they have a mortgage.
If you are a director or shareholder and have provided a guarantee as well, there are additional risks attached to it. While directors are usually not liable foe a company’s debts, a personal guarantee will allow the ATO to recover your company’s tax debts from you. Hence, you need to ensure that your company is able to comply with a payment arrangement before providing a personal guarantee.
What should be done?
Before entering into a payment arrangement with the ATO that provides security to the ATO, seek professional advice. A professional will be able to advise you on whether offering security is a good option, or whether it will create more issues down the track.
Contact us for Assistance
We have been assisting clients to negotiate payment arrangements with the ATO for years. Our experience provides us with the unique insight into whether a payment arrangement is likely to be accepted by the ATO. We can also provide you with advice on whether offering security to the ATO is an option for you or your business.
If you need to negotiate a payment arrangement with the ATO, or if you or your business are having difficulties paying tax debts, our professionals at TAX DEBT SOLVED can help. Contact us for a free, no-obligation consultation today.