Making a request to the ATO for a repayment arrangement does not necessarily guarantee that one will be granted.
While a repayment arrangement is an efficient and cost-effective way to obtain a release from tax liabilities, the ATO should not be considered a credit provider and expects taxpayers to pay in full and on time.
Where taxpayers are having difficulty paying, the ATO will assess certain factors that help to determine the taxpayer’s ability to meet their obligations (pay their debts). These factors include, but are not limited to:
- availability of access to alternate funding
- gross margin
- ability to change fixed assets to cash
- cash flow
The tax office will also consider whether the taxpayer was compliant with other tax debts and obligations to gauge whether a repayment arrangement is sustainable. They will not approve a payment arrangement where tax lodgements are not up-to-date.
Included within the assessment will be the tax payer’s ability to make their repayments outlined in the proposal, as well as their willingness to enter into a direct debit arrangement and any other conditions the ATO may impose.
The determination substantially draws from whether a taxpayer is genuinely suffering from serious hardship and has exhausted all other options.
A carefully prepared submission is crucial for the approval of a payment arrangement. Taxpayers need to ensure they provide the ATO within the agreed timeframe:
• details on how the debt arose
• steps taken to alleviate the debt
• recent bank statements and annual financial statements
• a proposal to repay all debts within a short timeframe
Taxpayers must be aware that the ATO will take immediate debt recovery action if they miss a payment on their plan. Default can also cause problems with the application of future payment plans.