Negotiating A ATO Payment Plan – 9 Handy Tips

Right Brain Insights has been helping independent industrial, manufacturing & trade service businesses create financial control & performance for nearly 10 years. Over that time, we have negotiated many ATO payment plans. These plans are often critical to stabilising cash flow, allowing recovery action to take effect.

Below are 9 ways we help our clients figure out, communicate, & manage ATO payment plans.  

If you are concerned your business is struggling under the weight of its tax debt, speak with your accountant or contact Right Brain Insights via www.rightbraininsights.com/about

1) Aim low, go high. 

The last thing the ATO wants is a company defaulting on a payment plan. It triggers the collection process on their end, creates ‘black marks’ on client records… Not a good look. Nobody wins. Not fun.

One way to reduce the likelihood of default is to agree on the longest-term practical. This way the mandated payment is as low as possible, increasing flexibility for the business. Remember the ATO is 100% OK with you paying the debt off ahead of schedule. 

With the lowest payment set, a neat trick is to pay a little more (think 5-10% more). Let’s say the payment plan is agreed at $1,000 a month. Set the reoccurring transfer in your interest banking to say $1,100. You’ll barely notice the difference, & you are showing genuine good will. More on why you want to do that later...

 2) How did you arrive here & what is the way out?

 Why do you need to enter into a payment plan? What has happened in your business? How can you rectify the cause? Do you need to invest further to fix the cause? This is important because often a ATO payment plan is simply treating a cash flow symptom of a much larger issue. 

Are customers taking too long to pay? Is profitability not strong enough? Not enough revenue? Incorrect financing? Not enough upcoming quotes & marketing needs to be addressed? Too much stock? Too little stock? The list of potential issues is almost infinite & unique to each business. 

If you fail to tackle the cause what can happen is you end up in a debt trap with the ATO. Why? Because you will still need to pay future obligations to the ATO, on time & in full. If only the symptom has been addressed, then when the next round of taxes come due, you could be right back where you started. 

For example - let’s say your legacy tax debt is $100,000 & your bottom-line profit margin is 10%. Assuming no change to the profit margin, you will require an ADDITIONAL $1,000,000 (debt / profit margin) in sales just to pay the debt back. If the profit margin increases, less sales are required. If the profit margin decreases - watch out! More sales will be required. 

Note that this is simply a profit & loss requirement. To truly understand the implication of the payment plan you must have a gauge on the balance sheet & how your business generates operating cash flow. 

3) Be proactive.

In life, & in business, stuff can (& will) happen.

If your circumstances change, don’t delay in informing the ATO. Give them a call, let them know & discuss your options. Do you need to push out the plan for a month because of a XMAS shutdown? Do you have a big project starting a little later than expected? A customer has gone under leaving you with a nasty bad debt. Whatever it might be, be proactive & communicate. 

You might be pleasantly surprised how accommodating the ATO can be.

4) Do it yourself.

A lot of business owners will request their accountants or bookkeepers to negotiate with the ATO on their behalf. Nothing wrong with this at all. However, in our experience we have found the ATO is most accommodating when speaking directly with the owner. Perhaps they view this as more trustworthy & genuine… honestly not sure.

 As the owner you need to understand 1) how you got into the reason you need the plan, 2) what you would like your plan to look like & why, & 3) what the recovery out should be. Write some dot points down for each of these 3 questions. Don’t be afraid or intimidated talking to the ATO.  

5) Do your homework & be creative.  

 Is your business set to flounder before things get better, or are you about to launch into recovery? Know your figures, especially if your debt is over $100K. Review your profit & loss & balance sheet. If you have not reconciled your financials, make sure you do this first. You want your figures to be accurate. 

What is your operating cash flow? What kind of repayment can it safely service? How can you optimise your cash flow to safely service the debt? 

Knowing your figures will help you approach the situation creatively. The ATO loves a straight-line plan. I.e. you have $100,000 in debt. Great let’s pay that off over 12 months at $8,333.33 per month. This is not the only option. Something we have done with clients, especially those trying to get up off their knees, is a staged plan. 

For instance, the $100,000 debt is paid off over 12 months, but at different levels. Months 1-3 might be at a very low amount per month, then months 3-6 at slightly more, following by 6 months of heavier repayments. 

Think about what would work best for your circumstances, then say it outright. When talking with the ATO for our clients we often start with “We’re happy to negotiate, but if we could have it our way we would…[insert plan of attack]…”

6) Don’t lie. 

This is basic one. Don’t lie.

Tell the ATO why you need the plan, what happened, & what you are going to do about it. If you begin to lie you actually are only robbing yourself, & arguably your fellow citizens. Of any organisation in the world, the ATO can arguably see the most about your business. They now data match across government departments & other private entities such as superannuation funds. They know what accounts your TFN is linked to. They know your payroll situation thanks to Single Touch Payroll reporting.

If you had a bad bookkeeper & it got out of hand. Say so. If you plain old forgot. Say so. If you didn’t pay because you prioritised your survival (common in COVID). Guess what… say so.

Remember the aim is make your business stronger over time. Nothing will prevent this more than lying to yourself about why you are in the situation you are in. 

7) Don’t avoid. 

Tax is the cost of civilisation. Drive on a road. Go to a school. Visit a hospital, a park, or a beach. Call an ambulance, fire truck or the police. Stroll past a military base. All of this (& more) are taxes at work. Yes, there is a lot of wastage. Yes, it’s political. Yes, taxes should be as low as possible. 

Speak with your accountant about all your options to minimise your tax, but don’t ever enter payment plans as a tactic to avoid tax.

8) Interest off for good behaviour.

A little like going to prison, good behaviour can help you out. The ATO will normally charge interest, quite a bit actually. If you are able to pay the debt off ahead of time, ask if you can have the interest credited back. You may be pleasantly surprised. 

This is a big reason why we suggest clients pay just a little bit above what they have agreed (refer number 1).

9) Be organised.

 Finally, once you have a payment plan make sure you pay it. Record the obligation somewhere. The ATO will normally send you a letter with a schedule of the payment amounts & the dates they must be paid by. Mark them off. Speak to your bookkeeper about building a series of bills reflecting the plan into your accounts payable. Whatever helps you stay on top of it.