Tax Debt? Take action now – the longer you leave it the greater the debt because general interest charge (GIC) accrues daily. The GIC can more than double the tax debt.
If you do not dispute the tax debt, taking action typically involves two steps. The first step is to attempt to reduce the tax debt by seeking a remission of interest and any penalties. The second step is to attempt to enter into a payment arrangement with the ATO in order to give you time to pay the debt. These steps presume that you do not dispute your liability to pay the debt in the first place.
There is generally no way of reducing your primary tax unless you dispute the assessment which led to its calculation. For example, if the ATO has reviewed your previous tax returns and made adjustments that result in higher income or lower deductions, you may be able to object to the assessment that was based on that review. This objection may ultimately lead to a reduction in your primary tax.
A second part of your tax debt is the GIC. This is interest which accrues daily on your primary tax when your primary tax is not paid, causing your liability to increase. For small amounts of primary tax, the GIC will generally be small, and the ATO will automatically remit it to you (i.e. credit the interest to your income tax account). However, for a large primary tax liability, the GIC could lead to a substantial interest bill, especially if the tax debt has been outstanding for a long period.
If your tax debt includes a large GIC component, your best option is to lodge an application for remission of the GIC. Your application should include supporting documentation that demonstrates why it is appropriate for the ATO to grant you a remission. The ATO will consider your application and make a decision as to whether or not you should be granted a remission.
If you are unable to pay off the entire debt now, you should seek to enter a payment plan to pay your debt off in instalments. For small tax debts you can usually establish a payment plan with the ATO over the phone using its automated phone service. However, with large tax debts, the ATO may assess your personal financial situation or your business before deciding whether to accept a payment plan. If you have failed to comply with a previous payment plan without a reasonable excuse, the ATO will generally refuse to enter a new payment plan.