ATO payment plans: how to set one up and keep it on track

Owing the ATO money is stressful, but it's also one of the most common problems we help with, and it's very fixable. The ATO would much rather be paid over time than chase you. What it wants to see is that you've engaged early, your lodgements are up to date, and the plan you're offering is one you can keep.

This guide explains who can get a payment plan, the limits for setting one up yourself, what the interest really costs now that it isn't deductible, the interest-free option for small businesses, and what happens if a plan defaults. Rules and figures are as at October 2026.

Who can get an ATO payment plan?

Most individuals, sole traders and businesses can. There's no fixed eligibility test. The ATO looks at the whole picture: how much you owe, your history of lodging and paying, and whether the instalments you propose are realistic given your income and expenses. It can agree to your terms, suggest different ones, or decline.

In practice, three things decide most applications:

1. Are all your returns and activity statements lodged? The ATO can't settle a plan around a debt it can't see in full. Unlodged returns are the most common reason a plan stalls.
2. Can you afford the instalments and still pay new tax on time? Every plan comes with a condition that future debts are paid in full and on time.
3. Is the term as short as you can manage? The ATO's stated aim is repayment over "the shortest possible fixed period".

Key point: A payment plan doesn't stop the interest. It stops the ATO escalating to firmer collection action while you keep to the plan.

Can I set up an ATO payment plan online?

Yes, if the debt is $200,000 or less. The limits that decide which route you take:

Two practical points. First, income tax and activity statement (BAS) debts sit on separate accounts, and each needs its own plan. Second, only one plan at a time can be set up through online services or the self-help line, so if you have several debts, it's often quicker to have your accountant arrange them together. As your registered tax agent, we can see your accounts and set up or negotiate plans on your behalf.

What the ATO will ask you

For a self-serve plan, very little: your TFN or ABN and the exact amount on each account. For a negotiated plan, the ATO wants to understand your capacity to pay. Have ready:

• why you couldn't pay by the due date
• your bank balances and any unused overdraft or line of credit
• your income and regular expenses (for a business, a short cash flow forecast does this best)
• the assets you hold
• how much you can pay now, and when you could pay in full

The ATO's payment plan estimator lets you test instalment amounts before you apply.

How much interest does the ATO charge on a payment plan?

The general interest charge (GIC) keeps accruing on the unpaid balance for the life of the plan, and it compounds daily. For October to December 2026 the GIC rate is 11.51% a year (0.03153425% a day). It's reset every quarter, and the ATO publishes current figures on its GIC rates page.

GIC is no longer tax deductible

This is the change most people haven't caught up with. GIC incurred on or after 1 July 2025 can't be claimed as a tax deduction. The same applies to shortfall interest charge (SIC). Before then, a business could at least deduct the interest, which softened the cost. Now an ATO payment plan is often one of the more expensive ways to borrow.

The flip side: if the ATO later remits (cancels) some of that interest, you don't have to include the remitted amount in your income. Our guide to asking the ATO to remit interest explains when that's worth trying.

Worked example: what a longer plan really costs

Example only, using round numbers and the October–December 2026 GIC rate held steady for simplicity.

Say a company owes $30,000 from overdue BAS. It's comparing three ways to pay.

Two things stand out. Stretching from 12 to 24 months nearly doubles the interest. And a business loan at an ordinary rate can cost noticeably less than the ATO, once you account for the deduction. The ATO itself suggests that businesses talk to their tax adviser about this.

That doesn't mean refinancing is always right. A loan may need security, it adds a lender who is less flexible than the ATO in hard times, and it doesn't help if the underlying problem is a business that isn't making enough to cover its tax. But it's a comparison worth running before you commit to a two-year plan. Our loan calculator agent models the repayments and the after-tax cost side by side; your accountant checks the assumptions with you.

Can I get an interest-free ATO payment plan?

Some small businesses can, for activity statement debts. As at September 2026, the ATO says a business may qualify if it:

• has an annual turnover of less than $2 million
• owes $50,000 or less from recent activity statements, overdue for up to 12 months
• has a good payment and lodgement history, including no more than one payment plan default in the last 12 months and no outstanding activity statement lodgements
• can't get finance through normal business channels
• can show the business is still viable.

The plan must be paid by direct debit within 12 months. GIC still appears on the account, but it's automatically remitted as long as you keep to the plan and stay on top of your other obligations. You can ask to convert an existing activity statement plan into an interest-free one. If you think you're close to these criteria, it's worth asking before you set up an ordinary plan.

Secured plans for larger or longer debts

If the ATO can't agree terms, it may accept security in return for more time, usually a registered mortgage over property or an unconditional bank guarantee from an Australian bank. This is mostly relevant to larger debts and longer terms, and it's worth getting advice before you offer your home as security.

What happens if you miss a payment or default?

A missed instalment doesn't immediately end the plan. The usual sequence:

1. Arrears. If you miss an instalment, or don't pay a new tax debt (such as your next BAS) on time, the plan can move into arrears. The ATO sends an arrears letter, to your myGov inbox or to your tax agent, saying the minimum you need to pay now and by when.
2. Default. If the arrears aren't fixed, the plan defaults. At that point the whole overdue balance becomes payable immediately, not just the missed instalment.
3. Firmer action. After a default, the ATO can move to firmer collection. That can include a garnishee notice to your bank, employer or customers, reporting an overdue business tax debt to credit reporting bureaus (after a notice of intent), director penalty notices for company directors, and in some cases legal action.

If you can see a missed payment coming, contact the ATO, or ask us to, before the due date. Changing an instalment date or amount is far easier than rescuing a defaulted plan. Online, you can change an instalment at least 1 business day ahead for card debits and 3 business days ahead for bank account debits, as long as the plan stays within 24 months.

If your plan has already defaulted, it can usually be renegotiated. Expect closer questions, and expect the ATO to want everything lodged first.

Watch out: For company directors, unpaid BAS isn't just a company problem. Unpaid PAYG withholding, GST and super can become your personal debt through a director penalty notice, and a payment plan doesn't cancel that exposure. Read our guide to director penalty notices if your company owes these amounts.

How to set up an ATO payment plan: step by step

1. Get the real number. Check your statement of account for each ATO account (income tax and activity statement) and the due dates. Don't combine debts into one figure.
2. Lodge everything that's outstanding. Returns and activity statements first. A plan built on an incomplete debt will be overtaken by the next assessment. If you have years of unlodged returns, start with our guide to overdue tax returns.
3. Work out what you can genuinely afford. Include your next BAS and income tax instalments, which must be paid in full on top of the plan. For a business, a short cash flow forecast is the best evidence you can give the ATO.
4. Pay what you can upfront. A lump sum now reduces interest and shows good faith.
5. Choose the shortest term you can keep. A plan you default on in month four is worse than a slightly longer plan you finish.
6. Set up direct debit from a bank account. It's the easiest way to stay on track, and card payments are being phased out after 30 June 2027.
7. Ask about remission. If the debt arose from circumstances outside your control, a separate request to remit the GIC can be made. It isn't automatic.
8. Diarise the plan alongside your normal tax dates. Most defaults happen because a new BAS comes due and isn't paid, not because the instalment is missed.

Mistakes we see with ATO payment plans

• Agreeing to an instalment that only works in a good month. If the business is seasonal, ask for a plan that reflects it rather than defaulting in the quiet months.
• Forgetting the next BAS. The plan covers the old debt. New debts must be paid in full and on time, or the plan can default.
• Leaving returns unlodged. The ATO may refuse a plan, and if a later assessment adds to the debt, the plan you negotiated no longer fits.
• Choosing the longest term to keep payments low. At current GIC rates, and with no deduction, every extra year adds real cost.
• Ignoring arrears letters. These letters usually give you a window to fix things. Ignored, they become a default.
• Dealing with the ATO alone when the debt is large. For larger debts, a properly prepared proposal with a forecast behind it is more likely to be accepted, and on better terms.

Do you need an accountant for an ATO payment plan?

Not always. If you're an individual or sole trader with a modest debt, your lodgements are up to date, and you can repay within 12 months or so, setting up the plan yourself online is quick and free. Do it.

It's worth getting help when:

• the debt is over $200,000 or needs more than two years
• returns or BAS are unlodged, or the figures may be wrong
• you're a company director and the debt includes PAYG withholding, GST or super
• you've already defaulted, or had a warning letter
• you think part of the debt or interest shouldn't be there, or should be remitted
• the real issue is cash flow, not a one-off bill.

How BPAG helps with ATO debt

We treat an ATO debt as a signal to look at the whole picture, calmly and without judgement. Most clients who owe the ATO have had something go wrong: a slow quarter, a big customer paying late, illness, a family change. Our job is to stop it getting worse and get you back on a normal footing.

• We get the full picture first. We pull your ATO accounts, find anything unlodged, and check the debt is right.
• We lodge what's missing. Our overdue tax and ATO debt service gets returns and BAS up to date quickly, with a realistic timetable agreed with the ATO if needed.
• We build the plan around real numbers. Our cash flow forecast agent drafts a month-by-month forecast from your Xero data, and your accountant checks it with you, so the plan you propose is one you can keep.
• We negotiate and set it up. As your registered tax agent, we deal with the ATO directly.
• We ask for interest to be remitted where there are grounds. Our ATO penalty remission agent drafts the request; your accountant reviews it, adds the evidence and decides whether it's worth lodging.
• We help stop it happening again. Many clients move onto our ongoing BAS and GST service, with GST, PAYG and super set aside as cash comes in.

The agents draft. A qualified accountant reviews and signs off every piece of advice, and nothing goes to the ATO or to you without a person approving it. If borrowing to repay the ATO involves a financial product, we'll work alongside your broker or licensed adviser rather than recommend one ourselves.

General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.