We often get asked by company directors and accountants how does the ATO apply payments it receives and can the ATO be directed to apply payments in a certain manner. This is because it can be very important how the ATO applies payments which it receives. The application of payments becomes important where a company cannot pay its entire tax debt and is partially paying its debt or paying an amount via a payment arrangement. For example:
- A director of a company may wish to pay a company’s unpaid PAYG Tax in priority to other tax debts to avoid the risk of getting a Director Penalty Notice for PAYG Tax amounts.
- Similarly a director who has received a Director Penalty Notice may wish for future payments made by a company to be applied against Director Penalty Notice amounts rather than a company’s other tax debts.
Company Can Request the ATO Applies Payments in a Certain Manner
A company can request that the ATO applies payments it receives in a certain manner. To do this it should:
- Try to get an acknowledgment from the ATO as to how payments will be applied as part of any payment arrangement; or
- If paying an amount outside of a payment arrangement get a verbal or written acknowledgment from the ATO as to how the payment will be applied prior to making it or forward a cheque with a letter requesting the manner in which the ATO should apply the payment.
How Does the ATO Apply Payments
The ATO is under no obligation to agree to any request to apply payments in a certain manner and it is entitled to apply payments in the manner prescribed by relevant tax legislation. The manner of applying prescribed payments is set out in the ATO’s policy statement PS LA 2011/20 (http://law.ato.gov.au/atolaw/view.htm?Docid=PSR/PS201120/NAT/ATO/00001) and it deals with a large number of specific tax debts. However, in regards to common types of tax debts payments are allocated as follows:
- Unpaid superannuation, payable as Superannuation Guarantee Charge (“SGC”);
- BAS amounts, allocated from oldest to newest.Where amounts have the same date for payment GST ispaid prior to PAYG Tax;
- FBT;
- Income tax debts.
Suggested Manner in Which to Seek the ATO Apply Payments
Whilst there is no guarantee that the ATO will accept such a proposal we recommend that companies, when making a part payment to the ATO or entering a payment arrangement, attempt to have the ATO apply payments received as follows:
- Firstly, to pay any amounts outstanding under Director Penalty Notices which have been issued.
- Secondly, to pay any amounts of SGC or PAYG Tax which have been reported more than three months late, so as to avoid the possibility of the ATO issuing “lock down” Director Penalty Notices.
- Thirdly, to pay unpaid SGC.
- Fourthly to pay unpaid PAYG Tax.
- Fifthly to pay other amounts owed to the ATO.
There is no guarantee that the ATO will accept any proposal for payments to be made in the above manner.
Get in Contact with Us
We may be able to assist you with your tax debt and any problems you are having with a business or company you trade, so we encourage you to get in contact with us for a free, no obligation discussion.
