ATO payment plans for businesses: how they work and why they fail
An ATO payment plan lets a business pay an overdue tax debt in instalments. A business that owes $200,000 or less may be able to set one up online; larger debts, plans longer than two years, and businesses that are insolvent need to call the ATO. A payment plan does not stop interest accruing, does not cancel a director penalty notice, and only works if the business can keep up the instalments as well as its new tax bills.
How to set up a payment plan
| Situation | How to set it up |
|---|---|
| Business owes $200,000 or less | You may be able to use Online services for business or the ATO’s automated phone service. A registered tax or BAS agent can also set it up |
| Business owes $200,000 or more | Call the ATO |
| You need more than 2 years to pay | Call the ATO |
| The business is insolvent, or you need to renegotiate an existing plan | Call the ATO |
| You defaulted on or cancelled 2 or more plans in the past 12 months, or received a warning of firmer recovery or legal action in the past 6 months | You may need to call the ATO |
Only one plan can be set up at a time through online services, and income tax and activity statement debts need separate plans.
What the ATO will ask about
- the full amount owing and why it cannot be paid by the due date;
- bank account balances and any lines of credit;
- income, and whether it can meet the proposed instalments; and
- expenses and assets.
Be realistic. A plan the business cannot keep usually leaves it worse off.
What a payment plan does not do
- It does not stop interest. The general interest charge continues to accrue on the overdue balance.
- It does not cancel a director penalty notice. See does a payment plan cancel a DPN?
- It does not reduce the debt. The full amount is repaid. Formal options such as small business restructuring can compromise debts; a payment plan cannot. See can ATO debt be reduced?
Why payment plans fail
- New tax bills on top of old ones. The business has to pay the instalments and its current GST, PAYG withholding and super at the same time.
- Instalments set too high to get the plan approved.
- Other creditors pressing at the same time.
- The underlying problem has not changed. If the business is losing money, a plan only delays the problem.
If a plan defaults, the ATO can move to garnishee notices and then legal action, including winding up.
Behind with the ATO?
The earlier you act, the more options you have. Book a free 30-minute call with Luke D’Costa, Senior Manager – Debt Strategist. If you have received a director penalty notice, check your deadline with our 21-day DPN calculator.
Book a free 30-minute call Sydney 02 9660 3532 · Brisbane 07 3868 1888
When a payment plan is the right answer, and when it is not
| A payment plan may suit if… | Consider other options if… |
|---|---|
| The business is profitable and the debt arose from a one-off problem | The business cannot pay its debts as they fall due |
| Current lodgements and payments are up to date | The ATO debt is one of several debts the business cannot meet |
| The instalments are affordable alongside new tax bills | Directors have received, or are at risk of, a director penalty notice |
| There is no other creditor pressure | A statutory demand or winding-up application has been served |
If the business cannot pay its debts as they fall due, directors need to think about insolvent trading, safe harbour and formal options such as small business restructuring.
Common questions
Can I set up an ATO payment plan for my business online?
If the business owes $200,000 or less, it may be able to set up a plan through Online services for business or the ATO’s automated phone service. Larger debts, plans longer than two years, and businesses that are insolvent need to call the ATO.
Does an ATO payment plan stop interest?
No. The general interest charge continues to accrue while a debt is overdue, so paying it off sooner reduces the interest.
Does a payment plan stop a director penalty notice?
No. A payment plan does not remit a director penalty. Only payment, voluntary administration, small business restructuring or liquidation within 21 days of a non-lockdown notice does.
What happens if I default on an ATO payment plan?
The ATO can move to firmer action, such as garnishee notices, and then legal action. Defaulting on two or more plans in 12 months can also stop you setting up a new plan online.
Will a payment plan stop the ATO reporting my debt to credit agencies?
A payment plan you keep to counts as engaging with the ATO, which is one of the conditions that prevents your business tax debt being reported to credit reporting bureaus.
Sources: Australian Taxation Office, Setting up a payment plan (last updated 1 October 2026); Australian Taxation Office, Remission of interest charges. This page is general information, not advice about your circumstances. Last reviewed: 9 October 2026.
Written by Luke D’Costa, Senior Manager – Debt Strategist. Luke has more than 16 years’ experience in insolvency and holds ARITA’s Advanced Certificate in Insolvency.
Reviewed by John Chand, Principal and Registered Liquidator. John has more than 17 years’ insolvency experience. Meet the team.
