What happens if I can’t afford my tax bill? Individuals with financial difficulties and serious hardship

Individuals and businesses go through ups and downs all the time. The ATO understands that because of this there may be times where you’re unable to lodge or pay by the due date. There are a number of ways that the ATO can help. The important part is making contact before the due date so that an efficient solution can be worked out. It is important to remember that it is your responsibility to meet your obligations, even if you use a tax agent.

So, what happens if you don’t pay on time?

1. General interest charges accrue on any unpaid amounts
2. The ATO may use any future tax refunds or credits automatically to repay your debt
3. Your debt may be referred to an external debt collection agency
4. The ATO can issue a garnishee notice to a person (e.g. your employer) or business (e.g. a bank) that holds money for you, or may hold money for you in the future. This requires them to pay your money directly to the ATO to reduce your debt.
5. The ATO can file a claim or summons. This can lead to the court filing or serving a bankruptcy notice.

The list below steps through the options available to individuals experiencing financial difficulties and serious hardship. You can be considered to have financial difficulties where unexpected or extenuating circumstances leave you unable to pay your tax debt for a period of time. The ATO takes many factors into account when assessing a claim for financial difficulties and may request that evidence be provided in support of your request.

Lodgement extensions

Lodgment deferrals extend the due date for lodgment of a document providing additional time to lodge without incurring a failure to lodge on time (FTL) penalty. Generally, most requests for deferral are approved given that the ATO has been provided with all the necessary information. Most often these requests are denied for reasons such as if an individual has a long record of late lodgments’ including poor compliance with deferred due dates.

Payment plan

If you can’t pay by the due date, you may be able to set up a payment plan which allows you to pay in instalments. You need to consider what you can pay to ensure you can meet each ongoing payment amount, and future obligations. It is important to note that even if you’ve made a payment plan to pay late or by instalments, interest will accrue on the unpaid debt. The ATO has an online payment plan estimator which is helpful in determining how quickly you can pay off your debt including how much interest you’ll be charged.

Priority processing

If you are experiencing financial difficulty and expecting an income tax refund, the ATO accepts requests for priority processing. However, it is important to note that if you have an existing debt with the ATO, this action can result in a requirement to pay outstanding liabilities first.

Early access to your superannuation

Generally, you must be of preservation age to access your super. However, you may be eligible for early access in a limited set of circumstances. These include severe financial hardship, compassionate grounds and if you have a terminal medical condition. To be eligible under severe financial hardship, an individual must show that they are unable to meet reasonable and immediate family living expenses. The individual must also have received Commonwealth income-support payments continuously for 26 weeks.

Release from your tax debt

In certain circumstances, the ATO will remove some or all of an individual’s tax debt. The ATO can only assess releasing you from debt in circumstances where you are experiencing serious hardship. The definition of serious hardship is when payment of your debt would leave you unable to provide food, accommodation, clothing, medical treatment, education or other necessities for yourself, family, or others for whom you are responsible. Please note that only individuals can apply for release. It does not relate to companies, trusts or partnerships.

If you are experiencing financial difficulties and have any questions in relation to what options are available to you, please contact one of our Team on (08) 9316 7000.

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Are you providing benefits to your employees? Common Fringe Benefits Tax exemptions and concession

Fringe Benefits Tax (FBT) is a tax paid by employers on certain benefits they provide to their employees or their employees associates. It is calculated based on the taxable value these benefits. For FBT purposes, an employee includes a current, future or past employee, a director of a company or beneficiary of a trust who works in the business. Note that FBT is a separate tax to income tax and is payable by the employer (not the employee). FBT paid is also an allowable income tax deduction. 

When calculating your FBT liability, the taxable value of the benefits provided must be grossed up. There are two gross-up rates. The type 1 rate is used where the employer is entitled to a GST credit for GST paid on benefits provided to an employee. The type 2 rate is used where there is no entitlement to a GST credit. Currently the type 1 gross up rate is 2.0802 and the type 2 rate is 1.8868. Grossing up the taxable value of benefits reflects the gross salary an employee would have to earn at the highest marginal tax rate to buy the benefits after tax. 

The tax payable is then the grossed up taxable amount multiplied by the FBT rate. Currently this rate is at 47%. 

Common examples of fringe benefits include vehicles that are available for employee’s private use, providing entertainment by way of free tickets or paying for an employee’s membership fees. 

Some types of benefits are exempt from fringe benefits tax and others receive concessional treatment. Below are some of the most common FBT exemptions and concessions. 

Work-related items exemption 

This exemption is limited to items that are primarily for use in the employee’s employment. Examples include: 

• Portable electronic devices (phones, laptops, tablets etc) 
• Computer software 
• Protective clothing 
• Briefcases 
• Tools of trade 

 Minor benefits exemption 

This exemption is applicable where the benefit provided is less than $300 in notional taxable value and unreasonable to be treated as fringe benefit.  The notional taxable value of the benefit is its value if it was taxable. When looking at whether a benefit is unreasonable to be treated as fringe benefit, there are 5 main criteria to be looked at: 

• The frequency and regularity of the benefit – the more frequent and regular a benefit, the less likely it will be an exempt benefit 
• The total of the notional taxable values of minor benefits – the higher the total, the less likely they will be exempt benefits 

• The likely total of the notional taxable values of benefits provided in association with the minor benefit – the greater the total value of associated benefits, the less likely it will be an exempt benefit. For example, a meal in isolation might be a minor benefit. If that meal is connected with a hotel stay and tax travel, it might not be considered minor anymore. 
• The difficulty in determining the notional taxable value 
• The circumstances under which the minor benefit and any associated benefits were provided – was it the result of an unexpected event or is considered principally as remuneration? 

Small business car parking exemptions 

Employers who meet the criteria for a small business entity are generally exempt from FBT for car parking benefits. For the exemption to apply, all of the following criteria must be met: 

• Parking provided is not in a commercial car park 
• The employer is not a government body, listed public company or subsidiary of a listed public company 
• The employer qualifies as a small business  

Taxi travel expenses exemption 

For taxi travel that is a single trip which begins or ends at an employee’s place of work, the benefit arising from the taxi travel is considered an exempt fringe benefit. This travel includes travel that is part of sickness or injury to an employee or travel to an employee’s place of residence. 

Living away from home allowance fringe benefits 

Employers can choose to pay employee’s an allowance to cover any additional expenses or disadvantages suffered as a result of them being required to temporarily live away from their normal residence in the course of performing their employment duties.  This is called a living-away-from-home-allowance (LAFHA). 

The taxable value of LAFHA fringe benefits can be reduced by amounts relating to food, drink and accommodation expenses where the following applies: 

• The employee maintains a home in Australia at which they usually reside; 
• The employee provides a declaration about living away from home; and 
• The fringe benefits relate to the first 12-month period at a work location 

If the above conditions are not met, the taxable value of the fringe benefit will equal the amount of the allowance paid. 

Should you have any queries regarding the above information, please do not hesitate to contact us on (08) 9316 7000. 

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