Why Many ATO Payment Plans Fail – And What You Can Do About It
For many Australian small businesses, entering into a payment plan with the Australian Taxation Office (ATO) can feel like a lifeline. It’s an opportunity to manage tax debts while keeping the business afloat. However, a significant number of these arrangements ultimately fail—often leading to cancelled plans, additional penalties, or even more serious consequences like garnishee notices or Director Penalty Notices (DPNs).
So, why do so many ATO payment plans fall apart? And more importantly, how can businesses avoid these common pitfalls?
1. Unrealistic Repayment Commitments
The most common reason for failure is agreeing to a repayment schedule the business can’t actually afford. Many business owners, under pressure or desperate to avoid enforcement action, promise to repay debts too quickly without considering realistic cash flow forecasts.
Tip: Always prepare a cash flow projection before negotiating a payment plan. This ensures the business commits only to what it can truly manage over time.
Reference: Australian Small Business and Family Enterprise Ombudsman (ASBFEO), 2023 – “Too many small businesses are entering unsustainable payment arrangements without adequate financial planning.”
2. Failure to Lodge Ongoing BAS or Tax Returns
ATO payment plans are conditional—not just on making repayments, but on staying compliant with all lodgement obligations. Missing a single BAS, even if payments are up to date, can trigger a default and cancellation of the plan.
Tip: Ensure all tax lodgements (BAS, income tax, superannuation) are submitted on time during the life of the plan.
Reference: ATO – “Businesses must lodge all activity statements and tax returns on time to remain eligible for a payment plan.”
3. Falling Behind on New Tax Debts
A common misconception is that a payment plan covers all tax debts. In reality, it only applies to debts incurred up to the date of the agreement. If a business fails to pay new GST, PAYG withholding, or superannuation as it arises, the ATO may cancel the plan.
Tip: Set up systems to track and pay new obligations. Consider separating funds for ongoing tax liabilities.
4. No Contingency for Unexpected Events
Without a financial buffer, even minor disruptions—like a bad debt, a late-paying client, or equipment failure—can cause a missed payment. The ATO has limited tolerance for repeated defaults, even if they’re unintentional.
Tip: Build contingency into your forecast. A 10–15% buffer on projected income and expenses can help manage the unexpected.
5. Underlying Insolvency Ignored
Payment plans are not a solution for insolvency. If a business can’t pay its debts as and when they fall due, it may be trading while insolvent. In such cases, a payment plan merely delays the inevitable—often worsening the problem.
Tip: Seek professional advice early. If insolvency is suspected, consider formal restructuring options such as the Small Business Restructuring (SBR) process.
Reference: ASIC Regulatory Guide 217 – “Directors must not allow the company to trade while insolvent. Payment plans do not excuse this obligation.”
6. ATO Concerns About Viability
The ATO evaluates whether a business is likely to survive based on its lodgement history, industry risk, previous defaults, and financial statements. If the ATO believes the business is not viable, they may reject or cancel the plan—even if payments are being made.
Tip: Present a clear, credible business plan or restructuring strategy to support your case for viability.
7. Lack of Expert Support
Too many business owners negotiate directly with the ATO without advice. They may miss critical factors—like forecasting, compliance issues, or alternative solutions.
Tip: Engage a qualified tax agent, accountant, or registered debt restructuring practitioner. They can improve your chances of success and help avoid costly mistakes.
Reference: CA ANZ – “Professional representation significantly improves negotiation outcomes with the ATO.”
How to Fix or Avoid a Failed ATO Payment Plan
✅ Get financial advice before negotiating any repayment terms
✅ Maintain up-to-date lodgements and compliance
✅ Budget for new debts—not just existing ones
✅ Build cash flow forecasts and review them regularly
✅ Be proactive with the ATO if things change
✅ Consider formal restructuring if debts are overwhelming
Final Thoughts
While ATO payment plans can be useful, they aren’t a long-term fix for deeper financial distress. If your business is experiencing chronic cash flow issues or has mounting tax debts, it’s important to act early and seek tailored advice. The sooner you address the root problem, the more options you’ll have to protect your business—and yourself.
References
Australian Taxation Office (ATO)
Payment plans – help with paying your tax debt
https://www.ato.gov.auLodging your BAS on time
https://www.ato.gov.auDirector Penalty Regime
https://www.ato.gov.au
ASIC Regulatory Guide 217 – Duty to Prevent Insolvent Trading
Australian Securities and Investments Commission
https://asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-217-duty-to-prevent-insolvent-trading/
Australian Small Business and Family Enterprise Ombudsman (ASBFEO)
Tax Concierge Report: Small Business Tax Disputes (2023)
https://www.asbfeo.gov.au
Chartered Accountants Australia and New Zealand (CA ANZ)
Improving small business tax outcomes through early intervention
https://www.charteredaccountantsanz.com
Australian Government – Treasury
Insolvency reforms to support small business (2021)
https://treasury.gov.au/consultation/c2020-124503
CPA Australia – Guide to Managing Tax Debt
Practical guide for small businesses facing ATO debt issues
https://www.cpaaustralia.com.au/
