ATO payment plans for business: limits, interest and how to set one up

What is an ATO payment plan?

It’s an agreement with the Australian Taxation Office to pay an overdue tax debt in instalments rather than all at once. For most small businesses, it’s the first option worth looking at, and it costs nothing to set up. You don’t need an adviser to arrange one, though your tax agent can do it for you.

It’s also the most-searched tax-debt topic in Australia, which tells you how many business owners end up here. We’re a funder, and we’ll be straightforward: for a modest debt you can clear within a reasonable time, a payment plan is often the cheapest path. This page explains how it works so you can judge for yourself.

How do you set one up?

1. Lodge everything that’s outstanding. The ATO generally expects lodgements to be up to date.
2. Check the balance in Online services for business. Income tax and activity statement debts sit in separate accounts.
3. Work out an instalment you can genuinely afford alongside new BAS, super and wages. Overpromising is how plans default.
4. Set it up online if the debt is under $200,000, or contact the ATO for larger debts.
5. Choose direct debit if you can — automatic payments reduce the risk of a missed instalment.
6. Diary the next BAS. Future obligations must be paid in full and on time while the plan runs.

What are the rules that catch people out?

Rule	What it means in practice
Online limit	Plans can be set up online for debts under $200,000; larger debts need a conversation with the ATO
Separate accounts	Income tax and activity statement debts each need their own plan
GIC keeps running	Interest compounds daily on the outstanding balance at the ATO’s quarterly rate
Not deductible	GIC incurred from 1 July 2025 can’t be claimed as a deduction
24-month limit for online changes	You can’t change a plan online if it runs, or would run, beyond 24 months
New tax on time	Missing a new BAS or assessment can default the plan
Default	The whole overdue balance becomes immediately payable and the ATO may take firmer action

The ATO sets the GIC rate quarterly and publishes it on its website. We don’t print it here, but you’ll need it if you want to compare a plan with a loan — our payment plan vs loan tool asks you to enter the current rate yourself.

What does a payment plan protect you from?

While you’re complying with a plan, several things don’t happen:

• Credit reporting. The ATO doesn’t disclose business tax debt to credit bureaus while you’re complying with a payment plan.
• Most firmer action. Garnishee notices, statutory demands and wind-up applications are far less likely while a plan is on track.

What a plan doesn’t do is remit a director penalty. If a director penalty notice has already been issued, the clock is running regardless, and the remitting outcomes are paying in full, appointing an administrator, appointing a restructuring practitioner, or beginning to wind up. See your first 21 days after a DPN.

When is a payment plan the right choice?

A plan usually makes sense when:

• the debt is under $200,000 and could be cleared within a year or two;
• the business can meet the instalments and keep current with new tax;
• no director penalty notice is in play, or the debt is mainly income tax;
• you haven’t defaulted on a plan recently.

It’s worth comparing with funding when the debt is large, the plan would run long, a lockdown applies, or the ATO has refused or defaulted a plan before. Our side-by-side payment plan vs loan page goes through it.

What if the plan isn’t working?

Don’t wait for the default letter. If instalments are becoming hard to meet, call the ATO before you miss one — it may be able to renegotiate. If the problem is bigger than a timing issue, look at the alternatives: a refinance of the ATO debt, a secured ATO plan, or free advice from the Small Business Debt Helpline on 1800 413 828.

An illustrative example

A small accounting-software reseller falls about $40,000 behind on its activity statement after a big client pays late. Lodgements are current and there’s no director penalty notice. The owner sets up a 12-month plan online by direct debit and moves GST into a separate account weekly so the next BAS is paid on time. The plan runs to completion, the business pays some GIC along the way, and no further ATO action follows. For this business, a loan would have been unnecessary — and we’d have said so.

Keeping the plan on track

Put instalments on direct debit, keep a separate account for GST and PAYG withholding so new BAS amounts are covered, and check the ATO portal monthly for letters. If something changes — a slow month, a big customer paying late — call the ATO before an instalment is missed, not after. A short conversation in advance is far easier than reinstating a defaulted plan.

Would a loan work better than a plan for you?

If a plan is likely to stretch too far, or you’ve been refused or defaulted, it’s worth a conversation. See if you qualify in about a minute — there’s no credit check to enquire, your details aren’t forwarded to a string of lenders, and a real person will help you compare honestly. If the plan is the better option, we’ll tell you that. Please enter accurate figures so the comparison is meaningful.