ATO Payment Plans: How They Work, Interest Costs and Alternatives

If your business is struggling to pay a tax bill, an ATO payment plan may help you manage your outstanding tax debt through regular instalments.

An ATO payment plan allows eligible businesses to pay their tax obligations weekly, fortnightly or monthly, rather than paying the entire amount upfront.

While this can provide some breathing room when cash flow is tight, it's important to consider the cost. The Australian Taxation Office (ATO) generally charges interest on overdue tax debts, and since 1 July 2025, these interest charges are no longer tax-deductible.

Depending on your financial position, other forms of business finance may offer a lower after-tax cost.

Here's what you need to know about how ATO payment plans work, the interest charges involved and the alternatives worth considering.

What is an ATO payment plan?

An ATO payment plan is an arrangement that allows businesses and individuals to repay outstanding tax obligations over an agreed period.

Rather than paying your entire tax bill by its due date, you make regular payments towards the outstanding balance.

ATO payment plans can help businesses manage existing debts relating to income tax, GST, PAYG and Business Activity Statements (BAS).

For example, a business with an outstanding tax debt of $30,000 may be able to arrange monthly instalments based on its ability to repay.

However, entering into a payment plan doesn't automatically stop interest from accumulating. The ATO generally continues applying its General Interest Charge (GIC) until the debt is repaid.

You'll also need to continue meeting your future tax obligations while paying down the existing debt.

Who is eligible for an ATO payment plan?

The ATO considers several factors when assessing whether a business qualifies for a payment arrangement.

These include:

• Your outstanding tax debt and the amount you can afford to repay
• Your previous lodgement and payment compliance history
• Any previous payment plan defaults
• Your current financial situation and business viability
• Your ability to meet future tax obligations

Businesses owing $200,000 or less may be able to arrange an ATO payment plan online or through the automated phone service.

For larger debts, or where the business has experienced previous defaults or more complex financial difficulties, you'll generally need to contact the ATO directly.

The ATO may request additional financial information, such as financial statements, cash flow forecasts and details of your existing liabilities.

It's also important to ensure outstanding tax returns and activity statements are lodged, even if your business can't immediately pay the amounts owing.

How to set up an ATO payment plan

Eligible businesses can arrange an ATO payment plan through ATO Online services for business.

Step 1: Log into ATO Online services

Log into ATO Online services for business.

You'll need access to the relevant business account and its Australian Business Number (ABN).

Step 2: Navigate to Payment plans

From the main menu, select Accounts and payments, followed by Payment plans.

Choose Add to begin setting up a new payment plan.

Step 3: Select your outstanding tax debt

Choose the account containing the tax debt you want to repay.

Review the outstanding balance and confirm the details before continuing.

Businesses with multiple accounts may need separate payment plans for different tax debts.

Step 4: Enter your payment details

You can propose a payment schedule based on your financial circumstances.

This may involve selecting:

• An upfront payment amount
• Weekly, fortnightly or monthly instalments
• Your preferred first instalment date
• A suitable payment method, such as direct debit

Consider your existing expenses and future tax payments when deciding on an instalment amount.

Step 5: Review and submit your payment plan

Review the proposed arrangement, including your payment schedule and estimated interest charges.

If you're satisfied with the payment details, submit your request.

The ATO will confirm whether your payment plan has been established.

What if you can't set up a payment plan online?

If your debt exceeds $200,000, your business has previous payment plan defaults or the available online options aren't affordable, you'll need to discuss your circumstances with the ATO.

You can also work with your registered tax agent or BAS agent to review your financial position and arrange a suitable payment plan.

How much will an ATO payment plan cost?

The cost of an ATO payment plan depends on your outstanding debt, the repayment period and the interest charges applied.

The ATO uses the General Interest Charge (GIC) to calculate interest on overdue tax payments.

For the October to December 2026 quarter, the GIC rate is 11.51% per annum.

The GIC rate:

• Is reviewed quarterly
• Is calculated daily on the outstanding balance
• Compounds over time
• Generally continues applying while an ATO payment plan is active

This means a longer repayment period can result in a higher overall cost.

Using the ATO payment plan estimator

The ATO provides a payment plan estimator to help businesses calculate potential repayments.

By entering your debt amount, proposed upfront payment and repayment frequency, you can estimate the instalment amount and potential interest charges.

Using the estimator before committing to a payment arrangement can help you assess whether the repayments are affordable.

It's also worth considering how the interest charges compare with other forms of business finance.

ATO interest is no longer tax-deductible

One of the most significant changes affecting businesses with overdue tax debts came into effect on 1 July 2025.

From that date, General Interest Charge (GIC) and Shortfall Interest Charge (SIC) incurred on ATO debts are no longer tax-deductible.

Previously, businesses could generally claim a deduction for these interest charges, helping reduce their after-tax cost.

Now, businesses must absorb the full cost of new ATO interest charges.

For businesses carrying larger tax debts over an extended period, this can make an ATO payment plan relatively expensive.

Importantly, the change applies to interest incurred from 1 July 2025, even where the underlying tax debt relates to an earlier financial year.

We've covered this change in more detail in our article, Don't Get Caught With Non-Tax Deductible Debt.

Could business finance be cheaper than an ATO payment plan?

Depending on your circumstances, yes.

While an ATO payment plan may be convenient, other financing options could offer a lower overall cost once tax deductibility is considered.

Interest on business borrowings may be tax-deductible where the borrowed funds are used in connection with carrying on an income-producing business. This can include certain borrowings used to pay business-related tax obligations.

The availability of a deduction depends on the purpose of the borrowing, your business structure and the applicable tax rules.

Comparing the after-tax cost

Consider a company comparing the interest cost of an ATO payment plan against a business loan.

Illustrative comparison using the October–December 2026 GIC rate and a hypothetical business loan. Assumes the company qualifies for the 25% company tax rate and can claim the full loan interest deduction. Excludes fees, compounding, repayment differences and other financing costs.

Despite the business loan having a higher advertised interest rate, the potential tax deduction reduces its effective after-tax cost.

Of course, deductibility isn't the only consideration. Loan establishment fees, security requirements, repayment terms and your ability to service the debt can all affect whether alternative finance is worthwhile.

The key is to compare the total after-tax cost, rather than looking at interest rates alone.

What are the alternatives to an ATO payment plan?

Before committing to an ATO payment arrangement, it's worth reviewing the other options available to your business.

Business loans and lines of credit

A business loan or line of credit may provide the funds needed to clear an outstanding ATO debt, with repayments made to the finance provider instead.

Depending on the facility, interest may be tax-deductible and the repayment terms may provide greater flexibility.

However, consider the interest rate, fees and any security or personal guarantee requirements before proceeding.

Invoice finance

Businesses with outstanding customer invoices may also be able to access funds through invoice finance.

Rather than waiting for customers to pay, eligible businesses can access funding against unpaid invoices.

This can help release cash tied up in outstanding invoices, which may then be available to meet tax payments and other operating expenses.

Invoice finance may be particularly relevant for businesses experiencing cash flow pressures because of extended customer payment terms.

The suitability, costs and tax treatment will depend on the facility and individual business circumstances.

Improving cash flow within the business

Sometimes, managing an ATO tax debt starts with reviewing the money already moving through your business.

Following up overdue invoices, reviewing upcoming expenses or adjusting the timing of non-essential purchases may help free up cash for outstanding tax payments.

You can also make additional voluntary payments towards your ATO payment plan to reduce the balance faster and potentially lower the interest charged.

Can small businesses access an interest-free ATO payment plan?

Some small businesses may qualify for an interest-free payment plan for overdue activity statement amounts.

Eligibility generally requires:

• Annual turnover below $2 million
• Recent activity statement debt of $50,000 or less, overdue for no longer than 12 months
• A good payment and lodgement history
• An inability to obtain finance through normal business channels
• The ability to repay the debt within 12 months through direct debit

If approved, the ATO may remit the interest charges while your business continues meeting the conditions of the arrangement.

For eligible small businesses, an interest-free payment plan could be more cost-effective than obtaining external finance.

It's worth checking your eligibility before deciding how to fund an outstanding tax bill.

What happens if you miss an ATO payment plan instalment?

Once you've entered into a payment arrangement, you need to meet the agreed payment schedule.

Missing payments or failing to meet future tax obligations can cause an ATO payment plan to default.

If this happens, the ATO may cancel the existing plan and resume debt recovery action.

Depending on the circumstances, this could include issuing garnishee notices or taking other enforcement steps.

Significant overdue business tax debts may also be reported to credit reporting bureaus where the relevant disclosure conditions are met.

If your business is struggling to meet an instalment date, it's important to contact the ATO or your registered tax agent before the payment is due.

Can you change an existing payment plan?

In some circumstances, yes.

You may be able to adjust your payment schedule or instalment amount if your financial situation changes.

You can also make additional payments or repay your outstanding balance early without an early repayment penalty.

Any future tax refunds or available tax credits may be applied against your outstanding ATO debt.

ATO credit card payments are changing from July 2027

Businesses that use credit cards to manage their tax payments will also need to prepare for an upcoming change.

The Australian Government has confirmed that direct credit card payments to the ATO will continue until 30 June 2027.

After that date, businesses wishing to pay by credit card will need to use a third-party payment provider, subject to the provider's fees and processing arrangements.

Other payment options, including BPAY, direct debit, electronic funds transfer and debit card payments, will remain available.

What does this mean for existing payment plans?

If your ATO payment plan uses a credit card, you'll need to review the payment method before the deadline.

Direct credit card payments scheduled after 30 June 2027 will no longer be accepted, potentially resulting in missed payments.

Businesses that rely on credit cards to manage cash flow should review their payment arrangements early and consider whether another payment method or financing option would be more suitable.

Frequently asked questions about ATO payment plans

Can I pay my ATO tax debt in instalments?

Yes. Eligible businesses and individuals can arrange an ATO payment plan to repay outstanding tax obligations through regular instalments.

Can I set up an ATO payment plan online?

Generally, businesses with eligible debts of $200,000 or less can use ATO Online services for business to propose a payment plan.

For larger debts or more complex situations, you'll need to contact the ATO.

Does an ATO payment plan affect your credit rating?

Entering into an ATO payment plan doesn't automatically affect your credit rating.

However, businesses with significant overdue tax debts that meet the relevant disclosure conditions may have their debt reported to credit reporting bureaus.

Is interest on an ATO payment plan tax-deductible?

No. General Interest Charge incurred on or after 1 July 2025 is no longer tax-deductible.

Is an ATO payment plan better than a business loan?

It depends on your circumstances.

An ATO payment plan may be simpler to arrange, while business finance could offer a lower after-tax cost where the interest is deductible.

Consider the total cost, repayment conditions and your business's financial position before deciding.

Need help managing your ATO debt?

If your business is struggling to meet its tax obligations, it's worth understanding your options before committing to a payment arrangement.

At Bonerath & Co., we help business owners review their tax obligations, assess cash flow and consider practical ways to manage outstanding debt.

Whether you're looking to establish an ATO payment plan or explore alternative financing options, our team can help you make an informed decision.

Contact Bonerath & Co. to discuss your circumstances.