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

Posted on 22nd November 2019 by Tashia Jayasekera

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.