Find out what happens if you don't pay your debt.
What happens if you don't pay:
If you're unable to pay your tax by the due date, it's important to contact us before the deadline so we can assist you while the situation is still manageable.
Our commitment includes:
- Listening to your circumstances
- Helping you get back on track
- Providing tools and services to assist with payment.
However, if you don't settle your debts on time, we will:
- Apply a general interest charge on the unpaid amounts
- Reach out to you shortly after the due date through:
- SMS
- Messages in myGov
- Letters
- Phone calls
- Use any future refunds or credits to offset the amounts you owe.
Stronger actions may be taken if you:
- Refuse to engage with us regarding your debt
- Ignore SMS or letter reminders
- Repeatedly default on agreed payment plans.
Additionally, ensure that you lodge your business activity statements and tax returns on time to avoid penalties for late submissions.
General interest charge:
If you don't pay your tax on time, a general interest charge (GIC) will automatically be added to the amount you owe. Your debt will increase daily as long as it remains unpaid.
Interest is calculated daily on a compounding basis and added to your account periodically.
The GIC interest rates are revised every quarter.
You can request a remission of part or all of the interest. We may grant a remission if extenuating circumstances caused your delay in payment.
Offsetting your credit or refund:
If you have a debt with us, including one that is on hold, we are legally required to use any credits or refunds you are entitled to in order to pay off that debt. This process is known as offsetting.
In limited cases, we have the discretion not to apply an offset. For more details, you can refer to *PS LA 2011/21 Offsetting of refunds and credits against taxation and other debts*.
In some instances:
- We may also use credits from other government agencies to pay off your debts.
- We are obligated to send your refund to other government agencies if you owe them money. For example, if you have an overdue child support payment, part or all of your refund may be sent to Services Australia.
Once your debts are fully cleared, any remaining credit will be refunded to you.
You can check if offsetting has taken place by reviewing your statement of account or through ATO online services.
External debt collection agencies:
If you have an overdue debt and do not respond to our request for payment, we may issue a pre-referral warning letter. If you still fail to respond to this letter or do not engage with us to address the debt, your account may be referred to an external debt collection agency for further action.
External debt collection agency contact details
Agency information | Phone |
From 29 January 2024 debt cases may be actioned by an external debt collection agency – recoveriescorp. | Individuals – 1300 323 495 Registered tax professionals – 1300 352 593 |
If your debt has been referred to Recoveriescorp, they will reach out to you by phone, email, SMS, or letter to request payment. If you're unsure whether the contact is genuine, do not reply. Instead, call Recoveriescorp using the official contact numbers listed to verify the communication.
If you have a registered tax professional, they may be contacted on your behalf.
If you remain uncertain, you can refer to our tips on how to verify or report suspected tax-related scams.
When we take firmer action:
We are committed to supporting taxpayers who strive to comply with their obligations while preventing those who avoid payment from gaining an unfair financial advantage. We take firmer action when individuals or businesses:
- Refuse to engage with us
- Ignore repeated SMS or letter reminders
- Repeatedly default on agreed payment plans
- Have the capacity to pay but fail to take steps to resolve their situation
- Have undergone an audit where deliberate avoidance was detected, and payment avoidance continues
- Appear to be engaging in phoenix activities, which involve using liquidation to evade financial obligations, only to resume operations under a new entity without risking assets.
You can avoid firmer actions by paying your debts in full and on time or setting up a payment plan.
Garnishee notice:
We can issue a garnishee notice to a person or business holding money for you or that may hold money for you in the future. This notice directs them to pay your funds directly to us to reduce your debt. You will receive a copy of the garnishee notice.
For individuals, we may issue a garnishee notice to:
Your employer or contractor
Banks, financial institutions, and building societies where you have accounts
People who owe you money from real estate sales, such as purchasers, real estate agents, or solicitors.
For businesses, we may issue a garnishee notice to:
Your financial institution
Trade debtors
Suppliers of merchant card facilities.
Director penalty notice:
As a company director, you can become personally liable for your company's unpaid amounts related to:
- Pay As You Go (PAYG) withholding
- Goods and Services Tax (GST)
- Superannuation Guarantee Charge (SGC)
These amounts for which you are personally liable are referred to as director penalties. Once we issue you a Director Penalty Notice (DPN), we can recover these penalty amounts from you.
We may issue DPNs to directors of multiple companies, encompassing the total value of unpaid tax and super across all related entities.
We can recover the amounts of the director penalty through:
- Issuing garnishee notices
- Offsetting any of your tax credits against the director penalties
- Initiating legal recovery proceedings against you.
Direction to pay super guarantee charge (SGC):
We can issue employers with a direction to pay any outstanding Superannuation Guarantee Charge (SGC) amounts (or estimates of SGC) within a specified timeframe.
When an employer receives this direction to pay, they are required to ensure that the full amount specified is paid. Failing to comply with this direction is considered a criminal offense and may result in penalties or imprisonment.
Disclosure of business tax debt:
If you have overdue tax debts and meet certain criteria, you may have your tax debt reported to registered credit reporting bureaus (CRBs). If you meet the reporting eligibility criteria, we will send a Notice of intent to disclose that advises you of the relevant action to take.
If you're already engaged with us to manage your tax debts, the debts will not be reported to CRBs.
When we take legal action:
In some cases, we may take legal action to recover outstanding tax and super debts. The action we take depends on whether the debt is owed by an individual (or sole trader), partnership, trust, superannuation fund or company.
Claim or summons:
If you don't work with us to address your debt, we may file a claim or summons with the relevant court of your state or territory. Once the court recognises the debt owed, we may execute on the judgment debt in several ways, including by filing and serving a bankruptcy notice.
If the court imposes judgment debt interest, this amount is not tax deductible.
Bankruptcy notice:
If you receive a bankruptcy notice, you must either pay your debt or set up a payment plan with us within 21 days. If you are unable to do this, we may file a creditor's petition to declare you bankrupt.
Bankruptcy is a legal declaration that an individual cannot pay their debts. Once a person is declared bankrupt, a bankruptcy trustee takes possession of nearly all their assets and sells them to settle the person's debts.
We will not pursue bankruptcy if it is evident that you can pay your debt within a reasonable timeframe. If you are facing bankruptcy action but believe you can settle your debts, you should provide us with clear evidence of your ability to pay.
You also have the option to enter bankruptcy voluntarily by filing a debtor's petition with the Australian Financial Security Authority.
Creditor's petition:
A creditor's petition is an application submitted to the Federal Court or Federal Magistrates Court seeking a sequestration order to declare you bankrupt.
Any creditor you owe money to, including us, can file a creditor's petition if you have committed an "act of bankruptcy" (such as failing to comply with a bankruptcy notice) within the past six months.
If the court grants the sequestration order, you will be declared bankrupt, and a trustee will be appointed to manage your estate. This typically involves selling most of your assets to pay your creditors, including us.
However, the court will not issue the order if you can demonstrate that you are able to pay all your debts immediately.
Statutory demand:
We can issue a statutory demand for payment to a company that has not paid its debts. This requires the company to pay the entire debt or enter into a payment plan with us within 21 days.
If a company doesn't comply with the statutory demand, we may use the non-payment as evidence that the company is insolvent and apply to the Federal Court to wind up the company.
Wind-up action:
When a court orders a company to wind up, an appointed official liquidator is responsible for selling the company's assets and distributing the proceeds to its creditors.
We will take action to wind up a company if:
- It has failed to pay its debts
- We have been unable to negotiate a suitable payment plan
These situations may indicate that the company is insolvent, posing a risk to us (and potentially to other creditors) that the debt will remain unpaid.
Source: Australian Government Tax Practitioners Board (https://www.tpb.gov.au/home)
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