Navigating Your Tax Obligations: A Comprehensive Guide to ATO BAS Payment Plans

If you’re struggling to meet your Business Activity Statement (BAS) deadlines, you’re not alone. Many small businesses face cash flow issues that make it difficult to pay the Australian Taxation Office (ATO) on time. Falling behind on these payments can lead to penalties and additional charges/interest that could severely affect your business operations and finances. 

The good news is that the ATO allows struggling businesses to set up BAS payment plans to make BAS payments more manageable. This type of payment plan might be just what you need to ensure compliance with your BAS obligations.

This guide contains all you need to know about BAS business payment plans and how they can help you manage your tax debt while maintaining financial stability.

Read on to learn more. 

What is a BAS payment plan?

Generally, businesses are required to lodge and pay their Business Activity Statements in full on or before the established monthly, quarterly, or yearly due date. BAS payment plans are an exception to this rule. 

A BAS payment plan is an arrangement with the Australian Taxation Office (ATO) that allows businesses to pay off their accumulated Business Activity Statement (BAS) tax debts over a set period, rather than in one lump sum. It exists to help businesses that are struggling with cash flow or unexpected financial difficulties, making it easier to manage their tax obligations without facing penalties or legal action.

The plan breaks down the amount owed  into manageable instalments, giving businesses breathing room to stay on top of their finances while meeting their tax responsibilities.

How do BAS payment plans work?

If you are behind on your business BAS payment, you can ask the ATO for a payment plan that would allow you to pay off the outstanding tax debts in regular instalments instead of all at once. 

Even though having a payment plan can help you avoid penalties, your tax debts will continue to attract general interest charges (GIC) for as long as they remain due. To minimise the amount of GIC you’d have to pay in the long term, the ATO recommends that you pay your debt within the shortest possible period. 

As such, when you apply to set up a payment plan, the ATO will consider several factors before approving it. They include factors such as your 

• Business cash flow: The ATO may ask how much the business earns and spends each month to assess your capacity to pay. For larger debts they may ask to see written evidence of this.
• Debt amount: Larger debts may require more substantial or frequent payments.
• Past payment history: A business with a good record of compliance may be granted more flexible terms.
• Current financial obligations: The ATO considers any other financial commitments to ensure the payment plan is manageable.

The goal is to ensure that you pay off your tax debts as quickly as possible, based on your unique circumstances. 

ATO-approved BAS payment plans usually fall within two categories :

• Automatic payment plan: For smaller tax debts (up to $200, 000), you can set up a plan online (using the ATO’s online services ), and the ATO will automatically calculate how much you need to pay upfront and for subsequent instalments.
  
  The amount suggested by the ATO is based on amounts that previous businesses in similar circumstances have been able to manage successfully. It can be modified up to a certain extent if that specific figure is not convenient for you.
• Negotiated payment plan: If you owe a larger amount (over $200,000) or are unable to set up a payment plan online, you’ll need to contact the ATO directly to discuss your options. In your conversation with the ATO, you’ll need to explain why you can’t pay by the due date and provide details of your assets, income, and expenses.
  
  You’ll also need to submit financial documentation (bank statements, profit and loss statements) to prove your business’s financial position, as well as a proposed payment plan for the ATO to approve. The more details you provide during the process, the easier it will be for the ATO to get a clear picture of your finances and help you establish a payment plan that suits your circumstances.
• Secured payment plans: If a negotiated payment plan cannot be reached for larger debts or more complex financial situations, the ATO may accept an offer of security (collateral).
  
  In exchange for mortgage rights over your freehold property or an unconditional bank guarantee, the ATO will either defer payment of the tax debts or permit you to pay off the tax in instalments. 
• Interest-free payment plans: Small businesses with an annual turnover of less than $2,000,000 may be allowed interest-free payment plans that run for 12 months if they owe $50,000 or less. 

ATO payment plans are generally flexible, and you can usually choose the number of instalments (weekly, fortnightly, or monthly) and the duration ( typically within 12-24 months) that’s most convenient for you.

However, the payment plan only covers outstanding BAS payments. You still need to keep up with current and future BAS payments and lodgements. If you miss a payment, you could face additional penalties.

Eligibility criteria for ATO BAS payment plans

To be eligible for an ATO Business Activity Statement (BAS) payment plan, your business must meet certain criteria, including the following:

• Australian Business Number (ABN): The business must have an active ABN.
• Lodging all required BAS forms: You need to have lodged all your Business Activity Statements and other tax returns (even if you can’t pay the full amount right away).
• Inability to pay the full amount by the due date: You must demonstrate that you are unable to pay the full amount on time but are willing to meet the payment plan obligations.
• Debt thresholds:  If your total tax debt is under $200,000, you can generally set up an automatic payment plan online using the ATO’s online services. If the debt exceeds this amount, you’ll need to contact the ATO directly to negotiate a plan.
• No existing or recent defaults: If you’ve defaulted on a previous payment plan within the last 12 months, this may affect your eligibility for a new plan.
• Good compliance history: Your business should have a good track record of complying with ATO obligations especially if you seek an interest-free plan. If there is a history of missed payments or a non-lodgment of returns, this may affect eligibility.

Once the plan is in place, it’s crucial to make regular payments as agreed. Missing a payment can lead to the cancellation of the payment plan and the imposition of penalties or interest.

How to apply for a BAS payment plan

Applying for a BAS payment plan with the ATO is a straightforward process. You can apply online, by phone, or through a registered tax agent depending on your debt threshold and unique preference.

 Below are the steps for each method, along with the required information:

Applying Online (via ATO Online Services)

You can set up a BAS business payment plan online if your debt is under $200,000. Here’s how to do it:

1. Log into ATO Online Services: If you’re a sole trader, use your myGov account linked to the ATO’s online services platform. Other types of businesses can use the ATO’s online services for business platform. You can set up a payment plan on the business platform by navigating to the “accounts and payments” tab, selecting “payment plan,” and following all subsequent prompts. The system will show you your outstanding BAS amounts and require that you select the debt that you wish to set up a payment plan for.
2. Decide on Your Plan: The system will also offer some default options, such as weekly or monthly payments. You can either adopt the suggested payment option or propose a custom payment plan by entering the amount you can afford for each payment and how often you’ll pay (weekly, fortnightly, or monthly).
3. Submit the Plan: Once you’ve selected your payment plan details, submit the proposal. The ATO will either automatically accept it or contact you to discuss the terms if they need adjustments.

Some of the details you’ll need for the online process include your :

• ABN or myGov login details
• BAS debt amount
• Business bank account details

Applying by Phone

If you owe $200,000 or less, you can also apply for a BAS payment plan by calling the ATO’s self-help phone line.

Once you dial the appropriate phone number for your business type, follow the prompts to connect with a representative.

Have your Australian business number (ABN) or tax file number (TFN)  and the full details of the amount owed handy before you make the call.

During the call, you’ll discuss your financial situation and propose a payment plan. The ATO representative will guide you through the process and confirm the terms.

Applying Through a Registered Tax Agent

If you use a registered tax agent or BAS agent, they can apply for the payment plan on your behalf.

For this, you’ll need to provide your tax agent with your business details and the amount of BAS debt owed and discuss how much you can pay each month.

The agent will apply for the payment plan through the ATO’s Tax Agent Portal. Once the payment plan is approved, your agent will notify you of the agreed terms.

These methods ensure flexibility in how you apply, making it easy to set up a payment plan that fits your business’s cash flow. If you’re unsure about how much to propose or need assistance, a tax agent can offer guidance.

Managing BAS payment plans: Tips and best practices

BAS payment plans are a valuable lifeline that can help you avoid ATO penalties. However, you must utilise and manage them properly to ensure they fulfil their purpose.

Here are some tips to help you manage your future payment plans (if you don’t already have one) effectively.

• Set Reminders for Payment Deadlines: Use calendar alerts or accounting software to set reminders for your BAS payment due dates. Staying ahead of deadlines helps prevent late payments, which can lead to interest charges or penalties from the ATO (Australian Taxation Office).
• Keep Accurate Financial Records: Maintaining up-to-date records ensures that your BAS is completed accurately. Organised financial records also help track payments and identify discrepancies in your cash flow.
• Regularly Review Your Payment Plan Status: Check the status of your BAS payment plan regularly to ensure all payments are up to date. Monitor any upcoming changes in your financial situation that may impact your ability to meet the plan.
• Communicate with the ATO if Circumstances Change: If your business faces cash flow issues or other changes that may affect its ability to meet BAS payments, contact the ATO early. They may offer flexibility or adjustments to your payment plan to avoid penalties.
• Avoid Missing Payments: Missing a payment can result in additional penalties and interest. If you foresee any issues, proactively manage your plan by contacting the ATO to discuss your options.
• Engage Proactively with Lawpath Tax & Advisory: Lawpath offer tax compliance plans where you will have your own tax agent to negotiate and confirm payment plans on your behalf – both for BAS and Income Tax payment plans

By following these best practices, you can stay on top of your BAS payment obligations and avoid financial stress down the road.

Consequences of defaulting on a BAS payment plan

Defaulting on a BAS payment plan can have serious financial and legal consequences for your business. Here’s what could happen if payments are missed:

• Penalty Rates: The ATO may impose penalties for late payments. These penalties can accumulate over time, increasing the total amount owed and making it harder to catch up.
• Potential Legal Action: If you continue to default, the ATO can take more aggressive measures, including issuing garnishee notices, which allow them to take money directly from your bank account or other financial assets. In severe cases, legal action could result in the seizure of business assets or the winding up of the business through bankruptcy proceedings.
• Impact on Future Payment Plans: Defaulting on a payment plan may make it harder to negotiate future agreements with the ATO, as they might see your business as a higher risk for non-compliance.
• Credit Rating Impact: Defaulting could also affect your business’s credit rating, which may limit access to loans or financing in the future.

If your business is struggling to meet payment obligations, it’s crucial to reach out to the ATO early. They may allow you to renegotiate the payment terms, extend deadlines, or offer temporary relief. This proactive approach can help avoid the harshest consequences of defaulting and keep your business afloat. Consider engaging an experienced tax agent like Lawpath Tax & Advisory to put your best case to the ATO in relation to your payment plan obligations.

Being upfront about financial challenges is key to minimising further damage and ensuring that your business complies with tax obligations.

FAQ

What is the minimum amount required to set up a BAS payment plan?

The ATO doesn’t specify a minimum amount to set up a BAS payment plan. However, businesses generally need to demonstrate that they cannot pay the full amount upfront. It’s best to contact the ATO directly to discuss your specific situation and eligibility for a plan.

Can I set up a BAS payment plan if I have other tax debts?

Yes, you can set up a BAS payment plan even if you have other tax debts. But you’ll need to pay those other debts in full or set up a payment plan that covers them. 

What should I do if I can’t make a payment under my BAS payment plan?

If you can’t meet a payment under your BAS payment plan, it’s important to contact the ATO as soon as possible. They may be able to adjust your plan or provide temporary relief to help you manage the situation.

Are there any fees for setting up a BAS payment plan?

No, there are no direct fees for setting up a BAS payment plan with the ATO. However, keep in mind that interest charges may still apply to the outstanding tax debt as part of the payment arrangement.

Final thoughts

ATO BAS payment plans offer businesses a flexible solution to manage their tax obligations and avoid penalties. 

By setting up a payment plan, businesses can spread their payments over time, easing financial pressure. However, it’s important to stay on top of deadlines, maintain accurate financial records, and communicate with the ATO if circumstances change. 

Lawpath has the resources, knowledge, and manpower to help you stay on top of your tax obligations without stress. Contact us today to learn more about our business tax compliance services. Let us help you manage your payment plans and ensure all the ATO’s conditions for payment plan management are met.