Interest-free ATO payment plans: the exact criteria for small business

What is the interest-free ATO payment plan?

It’s one of the ATO’s alternative payment arrangements, designed for small businesses with recent, modest activity statement debt. Where a business qualifies and keeps to the plan, the general interest charge is remitted — so the debt costs nothing beyond the debt itself. If you qualify, it’s very likely the cheapest structured option available to you, and you should look at it before anything else. Including a loan from us.

What are the exact criteria?

The ATO lists these conditions, and a business needs to meet all of them:

Criterion	The ATO’s requirement
Size of business	Annual turnover under $2 million
Type and size of debt	Activity statement debt of $50,000 or less
Age of debt	Overdue for no more than 12 months
Lodgements	No outstanding activity statement lodgements
Payment history	No more than one payment plan default in the past 12 months
Finance	The business can’t obtain finance (such as a loan) through normal business channels
Viability	The business can demonstrate ongoing viability

Payments are made by direct debit over 12 months. GIC applies along the way but is automatically remitted if the plan is maintained.

Why does the ATO ask whether you can get finance?

This criterion surprises many people, but it makes sense from the ATO’s point of view. An interest-free plan is a form of support. The ATO reserves it for businesses that genuinely need it, and expects businesses that can borrow to consider doing so. In other words, the ATO itself sees a business loan as a normal way to deal with tax debt.

How the ATO assesses that criterion is its decision, not ours. If you’re unsure whether you’d qualify, ask the ATO or your tax agent directly before applying anywhere for finance.

Who does the interest-free plan suit?

Picture (illustratively) a small hair salon with turnover well under $2 million that fell $30,000 behind on two quarters of BAS after a renovation ran over budget. Its lodgements are up to date, it has never defaulted on a plan, the bank won’t lend for this purpose, and trading has recovered. That business is exactly who the plan is for, and paying it off by direct debit over 12 months without interest is a sensible outcome.

It doesn’t suit everyone:

• Debts over $50,000 don’t qualify.
• Debts older than 12 months don’t qualify.
• Income tax and super debts aren’t covered — it’s for activity statement debt.
• Businesses with outstanding BAS lodgements need to catch up first.
• A business that can borrow may not meet the finance criterion.

What if you don’t qualify?

You still have options, roughly in this order:

1. A standard ATO payment plan, online for debts under $200,000 — see ATO payment plans.
2. A request to remit GIC if circumstances outside your control caused the delay — see GIC remission.
3. A secured ATO plan for larger debts.
4. Funding to pay the activity statement debt out, especially where director penalties are involved — see BAS and GST debt loans.

What happens if you default on an interest-free plan?

Like any plan, missing a direct debit, ignoring an arrears letter or not paying new tax on time can cause a default. You’d lose the benefit of the remitted interest, the whole overdue balance would become payable, and you’d have a default on your record that counts against you for 12 months. Keep the next BAS paid on time — it’s the condition people forget.

How do you prepare an application that gets a clear answer?

The ATO assesses interest-free plans against its criteria, so the best preparation is simply showing — clearly and briefly — that each one is met:

Criterion	What to have ready
Turnover under $2 million	Your last financial year’s turnover from the BAS or financial statements
Activity statement debt of $50,000 or less	Your current activity statement balance from online services
Overdue no more than 12 months	The due dates of the unpaid periods
No outstanding lodgements	Confirmation every activity statement is lodged
No more than one default in 12 months	Your plan history, if any
Can’t obtain finance through normal channels	A brief, honest explanation — for example, a bank’s decline
Ongoing viability	Recent trading figures and a simple forecast showing new BAS amounts can be met

Your registered tax agent can make the request for you. If you’re doing it yourself, keep notes of who you spoke to, when, and what was agreed.

What if you’re just outside the criteria?

Being slightly over a threshold doesn’t leave you without options — it just means a different one fits. Some practical paths:

• Debt just over $50,000? Ask whether paying part of it now would bring the balance within the criteria, and confirm with the ATO before relying on that approach.
• Debt older than 12 months? A standard payment plan is still available online for debts under $200,000.
• Lodgements behind? Catch them up first. It also protects directors from the lockdown rule.
• Previous defaults? Show what has changed since — a new bookkeeper, a separate tax account, monthly BAS.

If none of these works and the debt is putting the business or a director at risk, that’s when funding is worth a look.

Not sure which option fits?

Our ATO debt options checker asks the questions that matter — turnover, debt size, age, lodgements, notices — and tells you whether the interest-free plan is worth checking first. If it isn’t a fit and funding looks sensible, you can see if you qualify in about a minute. There’s no credit check to enquire, your details aren’t passed around to lenders, and a real person will be honest with you about whether the ATO’s free option or a loan is the better path. Accurate answers make the difference.