ATO Payment Plans: How They Work and What Happens If You Miss One

Can you pay the ATO in instalments? Yes, if the ATO accepts a plan

An ATO payment plan lets you clear a tax debt in instalments, provided the Australian Taxation Office (ATO) accepts it. According to the ATO, a plan breaks the debt into smaller amounts paid weekly, fortnightly or monthly over the shortest possible fixed period, until the balance is cleared.

The ATO says people experiencing financial difficulties may be eligible, and acceptance is not automatic. Depending on the circumstances, a person may not be eligible on the terms they suggest, or at all. If a request is not accepted online or through the self-help phone line, the ATO asks people to phone its lodge and pay enquiry line to discuss eligibility.

A payment plan does not stop a tax debt growing, because debts on a plan keep accruing general interest charge (GIC), which compounds daily. Future tax debts still have to be paid in full and on time, or put on a separate plan. Income tax debts and activity statement debts each need their own plan.

How to set up an ATO payment plan

The quickest way to set up an ATO payment plan is through online services, according to the ATO. That route, or the ATO's self-help phone line, may be open if you owe $200,000 or less. A registered tax agent or business activity statement (BAS) agent may also be able to set up a plan for you.

1. Run the numbers. The ATO's online payment plan estimator shows what you may need to pay upfront, a minimum repayment, how quickly the debt could be cleared and an estimate of the interest. It cannot be used for super guarantee charge debts.
2. Find the amount on each account. For the self-help phone line, the ATO says not to combine debts. Each amount appears on the latest notice or in online services.
3. Log in or call. Individuals and sole traders use ATO online services through myGov, under Tax, Payments, then Payment plans. Businesses use Online services for business, under Accounts and payments, then Payment plans. A self-help phone line is the alternative.
4. Set the instalments. The ATO suggests an upfront amount and instalments, which you can vary up to certain values. Only one plan can be set up at a time through either channel.
5. Choose direct debit and reminders. Direct debit can be set up with the plan, and SMS or email reminders can be selected.

When you need to phone the ATO instead

The ATO requires a phone call to its lodge and pay enquiry line if you owe more than $200,000, need longer than 2 years, need to re-negotiate an existing plan, need extra support because of significant financial hardship, or are insolvent, bankrupt or in dispute. You may also need to call if you have had a warning of firmer action in the past 6 months, or defaulted on or cancelled 2 or more plans in the past 12 months.

For that call, the ATO asks for your tax file number or Australian Business Number (ABN), details that prove your identity and the full amount owing. It will also ask why you cannot pay by the due date, along with your bank balances, any lines of credit, income, expenses and assets. The ATO suggests the Moneysmart budget planner as preparation.

What an ATO payment plan really costs: a worked example

A $20,000 tax debt repaid over 12 instalments costs about $1,257 in GIC at the October to December 2026 rate. The ATO's GIC rate for that quarter is 11.51% a year, or 0.03153425% a day. On $20,000, that is about $6.31 on the first day. Because the charge compounds daily, 11.51% works out at about 12.2% over a full year if the rate does not change.

Each row adds up. For 12 instalments, 11 x $1,771.41 plus $1,771.39 equals $21,256.90, and taking off the $20,000 debt leaves $1,256.90 of GIC. Going from 12 to 24 instalments lowers each regular instalment by $835.49 and adds $1,205.07 of GIC.

These figures are our own arithmetic, not ATO figures. They assume no upfront payment, the first instalment 30 days after the plan starts, no other debts and the October to December 2026 rate for the whole term. The ATO revises the rate quarterly and adds interest to the account periodically, so real amounts will differ. The ATO's estimator gives an estimate for an actual debt.

General interest charge is no longer deductible, so its real cost is higher

General interest charge now costs more in after-tax terms, because it can no longer be claimed as a deduction. According to the ATO, GIC incurred in income years from 1 July 2025 cannot be claimed, even if the debt relates to an earlier income year. GIC incurred before 1 July 2025 can still be claimed for the income year it was incurred.

The table below uses one illustration: an Australian resident with taxable income between $45,001 and $135,000 in 2026-27. The ATO's rate for that band is 30 cents in the dollar, plus the 2% Medicare levy, so 32 cents.

The last column is the GIC divided by 0.68, which is what remains of each dollar after 32 cents of tax. At another marginal rate, divide the GIC by one minus that rate. Companies are not modelled here. Your own marginal rate is a question for your registered tax agent.

Paying more upfront or early reduces the interest

Paying more upfront reduces the general interest charge because less of the debt is compounding. In the same example, paying $5,000 upfront and repaying the other $15,000 over 12 instalments, 11 of $1,328.56 and a final one of $1,328.51, costs $942.67 in GIC. The total paid is $20,942.67, which is $314.23 less than with no upfront payment. This uses the same assumptions as the worked example and is our own arithmetic.

An ATO payment plan can be paid off early, which also leaves less of the debt compounding. The ATO says you can make additional voluntary payments or pay off the debt at any time. If the balance is cleared early, the plan has to be cancelled to stop the remaining direct debit instalments. The ATO's estimator page suggests checking the account balance before the last payment.

Refunds and credits are applied to the debt as well. According to the ATO, they reduce the debt but do not replace the required instalment, so the next instalment still falls due.

Small businesses may qualify for an interest-free plan on activity statement debts

Some small businesses can repay overdue activity statement amounts without paying interest. According to the ATO, a business may be eligible for an interest-free plan over 12 months if it:

• has annual turnover of less than $2 million
• has recent activity statement amounts of $50,000 or less, overdue for up to 12 months
• has a good payment and lodgement history, including no more than one plan default in the last 12 months and no outstanding activity statements
• cannot obtain finance through normal business channels
• can demonstrate ongoing viability.

Repayment is by direct debit within 12 months. GIC is still incurred, but the ATO says it is automatically remitted once it appears on the account, as long as the plan is maintained. A business that meets the criteria can ask, by phoning the ATO, to change an existing activity statement plan. If the ATO approves, the interest-free period starts from the date of the new plan.

Secured payment plans

The ATO also describes secured payment plans. If it cannot reach an agreement about paying the amount owed, it may consider an offer of security, preferably a registered mortgage over freehold property or an unconditional bank guarantee.

How long the ATO gives you to pay depends on the bill and the plan

The time to pay depends first on the bill. According to the ATO, a bill on a self-prepared individual tax return is generally due on 21 November, and the date may be later when lodging through a registered tax professional. Delaying the return does not change that due date.

For a payment plan, the ATO pages cited in this guide do not state a single maximum term. They describe the shortest possible fixed period, and they set these markers:

The ATO asks people who cannot pay to contact it before the due date. A registered agent can also request a payment-only deferral if a client needs more time to pay. If a debt goes unpaid, the ATO applies GIC, makes contact by SMS, myGov, letter or phone, and uses future refunds or credits against the debt. A debt may also be referred to an external collection agency.

Missing an instalment can mean arrears, then default

Missing one instalment may not end an ATO payment plan straight away, though it can lead to default. According to the ATO, a missed instalment, or another tax obligation not paid by its due date, may leave the plan active but move it into arrears. The ATO may then send an arrears letter stating the minimum amount to pay now and what else is needed to prevent a default.

On default, the whole overdue balance becomes immediately payable and the ATO may take firmer action. After a default, the ATO asks people to contact it about their options, which may include re-negotiating a plan.

Instalments can be changed before they fall due. Online changes need at least 1 business day's notice for direct debit by debit card and 3 business days for direct debit from a bank account. Cancelling a plan while a debt is still overdue may also lead to firmer action.

Firmer action is more likely after repeated defaults or no contact

The ATO says firmer action is more likely after refusing to engage or repeatedly defaulting on agreed plans, and that it considers a person's compliance history and engagement. The ATO also says firmer action can be avoided by paying in full and on time, or possibly by setting up a payment plan.

Firmer action may include:

• A garnishee notice. This requires someone who holds or may hold your money to pay it directly to the ATO. For individuals, that can include employers and banks. For businesses, it can include banks, trade debtors and merchant card suppliers.
• A director penalty notice. Company directors may become personally liable for the company's unpaid pay as you go withholding, goods and services tax and super guarantee charge. The ATO can recover those amounts 21 days after issuing a notice. The notice sets out options to remit the penalty within those 21 days, and a successful defence means the amounts need not be paid.
• Disclosure of a business tax debt to registered credit reporting bureaus.

Anyone who has received a notice about any of these should get advice from a registered tax agent promptly, because the steps depend on the notice and the circumstances.

Does an ATO payment plan affect your credit score? The ATO's rule covers business debts

The ATO's published reporting rule is about business tax debts, and a plan being followed keeps a debt out of it. According to the ATO, it may report a business tax debt to credit reporting bureaus only when all of these apply:

• the taxpayer has an ABN and is not an excluded entity
• at least $100,000 is overdue by more than 90 days
• the taxpayer is not engaging with the ATO to manage the debt
• there is no active Tax Ombudsman complaint about the intended report.

The ATO lists having a payment plan and complying with its terms as engaging, so that debt is not reported. It sends a written notice first, and the taxpayer has 28 days from receiving it to act. The details reported are the ABN, legal and business name, entity type and overdue amount. They are removed when the debt is paid in full or effectively managed.

For checking a credit reporting record, the ATO points to the Office of the Australian Information Commissioner, and to Moneysmart for general information on credit scores and reports.

Keep lodging and paying new bills while on a payment plan

Lodging on time still matters when a bill cannot be paid. The ATO says lodging gives certainty of the amount to pay, and that keeping up with ongoing obligations is part of keeping a plan from defaulting. Its October 2026 reminder to individual taxpayers puts failure to lodge penalties at up to $1,820. The ATO's penalty page applies higher multiples of the base penalty to larger withholders. The same page says penalties are generally not applied to isolated late lodgement.

A checklist for the life of a plan, drawn from the ATO's conditions:

• Lodge all returns and activity statements on time, including those due while the plan is running.
• Pay new tax debts in full and on time, or set up a separate plan for them.
• Set aside future tax and super obligations when working out what instalment is affordable.
• Make sure each instalment is paid by the due date, by direct debit or another payment option.
• Check the plan's status in online services.

If returns have already fallen behind, our guide to overdue tax returns covers that side of the problem, and our guide to business activity statements explains how BAS works.

If a payment plan is not affordable, ask about hardship options

A payment plan is not the only option the ATO describes for someone who cannot pay. If a person needs additional support, the ATO says it will work with them to understand their situation and provide tailored help, and it asks people to make contact as early as possible.

Two other options are worth knowing by name:

• Remission of GIC. A person can ask the ATO to remit some or all of the interest. The ATO may do so where there are extenuating circumstances. GIC incurred on or after 1 July 2025 and later remitted does not need to be included as interest income.
• Release from a tax debt. If paying would cause serious hardship, a person can apply for release from some or all of the debt. The ATO considers individual circumstances and decides eligibility.

For hardship support, the ATO says it needs details such as income and expenses, and in some situations evidence.

Is a payment plan a good idea? That depends on your circumstances

Whether an ATO payment plan suits a person depends on their circumstances, so this guide does not give a yes or no. The table sets out what a plan does and costs under the ATO's rules.

This guide is general information only and does not take your circumstances into account. A decision involving a financial product or super belongs with a licensed financial adviser. The ATO decides whether a plan is accepted and on what terms.

Where to go next

For the lodgement side of a tax debt, read overdue tax returns. To talk through your own position, contact Lomandra Accounting.

Lomandra Accounting is a CPA practice registered with the Tax Practitioners Board, working as a virtual firm by phone, video and email. For overdue BAS or late returns, the practice says: "We reconcile transactions, prioritise lodgements to limit penalties and work with the ATO on realistic payment plans where needed." See the full list of services or the tax accountant on the Sunshine Coast and accountant in Nambour pages.