Tax Debt: ATO Payment Plans and Hardship
How to set up ATO payment plans, the serious hardship release test, enforcement powers the ATO holds if you disengage, and where to get free help.
The ATO will normally consider an instalment arrangement rather than immediate enforcement if you engage early and keep your lodgements up to date. Individuals and sole traders can self-serve payment plans through ATO Online via myGov for debts up to around $100,000. GIC continues to accrue during a payment plan at 10.65% to 10.96% annual (2025-26 quarters) and is no longer deductible from 1 July 2025. For genuine serious hardship, the Commissioner has a limited discretion under the Tax Administration Act 1953 to release individuals from certain tax-related liabilities.
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Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact ATO. Read our editorial scope →
Setting up an ATO payment plan
The ATO strongly prefers instalment arrangements over immediate enforcement, provided you engage early and keep all lodgements current. Individuals and sole traders can set up payment plans through ATO Online via myGov for debts up to approximately $100,000. For larger debts, phone negotiation is required: 13 11 42 for individuals, 13 72 26 for business lines. Businesses with an ABN can also use Online Services for Business. You choose the payment frequency (weekly, fortnightly, or monthly) and may be asked for an upfront payment of 5% to 20% depending on risk profile. The ATO's payment plan estimator models how quickly the debt will clear and how much GIC will accrue, pushing you toward the shortest affordable term.
Serious hardship and debt release
The Commissioner has a limited discretion under the Tax Administration Act 1953 to release individuals from certain tax-related liabilities where payment would cause serious hardship. This is exceptional relief, much harder to obtain than an ordinary payment plan or GIC remission. Only individuals (including sole traders) and trustees of deceased estates can apply. Eligible debts include income tax, PAYG instalments, FBT, Medicare levy, and some penalties and interest. Superannuation guarantee charge and amounts held on behalf of others are excluded. Serious hardship exists when paying the debt would leave you without the means to pay for basic necessities: food, housing, medical care, or reasonable education.
The hardship test
The ATO applies an income-and-outgoings test, an assets-and-liabilities test, and considers other relevant factors including illness, unemployment, and capacity to refinance. Evidence must be recent (within four weeks per the April 2026 refresh) and may include bank statements, tenancy agreements, medical reports, and bills. The ATO may grant full or partial release, or refuse and instead offer a payment plan or GIC remission. Hardship release is rarely used where the person has significant assets that could be realised.
ATO enforcement powers
If you do not engage or default on arrangements, the ATO has strong statutory recovery tools. These escalate significantly once you disengage from voluntary compliance.
Garnishee notices
Under section 260-5 of Schedule 1 to the Tax Administration Act 1953, the ATO can issue garnishee notices to banks, employers, or anyone who owes you money, compelling them to pay amounts directly to the ATO. Garnishee notices can be one-off or continuing and can target trading accounts, merchant facilities, or key customers in your business. For a self-employed person, a garnishee notice on your main business account or key client can effectively shut down operations.
Statutory demands and winding-up
For company debts, the ATO can issue a creditor's statutory demand under the Corporations Act 2001. Failure to comply within 21 days creates a presumption of insolvency, allowing the ATO to apply to wind up the company. For personal debts, the ATO can obtain judgment and issue a bankruptcy notice; non-compliance enables a petition to make you bankrupt.
Departure Prohibition Orders
The ATO can issue an administrative order preventing you from leaving Australia where there is a significant tax debt and the Commissioner believes departure would jeopardise collection. Revocation usually requires entering a payment arrangement or providing concrete evidence of a repayment plan.
Free and low-cost support channels
Several independent channels exist for small businesses and sole traders struggling with ATO debt. The National Tax Clinic Program is a government-funded network hosted by universities giving free or low-cost tax help to individuals, micro, and small businesses who cannot afford professional advice. Clinics can assist with ATO disputes, debt negotiations, and often act as intermediaries. Alternative Dispute Resolution is available through the ATO's in-house facilitation or mediation service for disputes about assessments, debt, and payment terms. The Inspector-General of Taxation and Tax Ombudsman (operating under the Inspector-General of Taxation Act 2003 and aspects of the Ombudsman Act 1976) investigates systemic issues and can review individual complaints about ATO administrative actions including debt recovery behaviour and use of enforcement powers.
What bankruptcy does (and does not) do to ATO debt
In personal bankruptcy, most ordinary ATO tax debts (income tax, GST, PAYG instalments) are provable debts. The ATO participates as a creditor and the unpaid balance is released when the bankrupt is discharged after three years and one day. However, only debts existing at the date of bankruptcy are provable; post-bankruptcy tax debts remain fully payable. Penalties or fines imposed by a court for offences are not provable in bankruptcy under section 82(3) of the Bankruptcy Act 1966 and survive discharge. Director penalties for company PAYG or superannuation debts can survive a director's personal bankruptcy if the underlying DPN obligations were not complied with before bankruptcy.
COVID-era tax debt and current ATO stance
During 2020-21, affected taxpayers could defer payments for up to six months, enter low-interest or GIC-free payment plans, and in some cases have GIC remitted. These concessions applied to income tax, PAYG instalments, GST, and FBT. The ATO has now shifted back to business-as-usual collection. Most COVID-deferred debts are in standard payment arrangements or subject to ordinary enforcement. New accruals attract standard GIC rates. Any concession now requires a case-by-case remission request based on ongoing hardship, assessed under the same framework as any other remission application.
Statute references
- Tax Administration Act 1953 (payment plans, hardship release, garnishee s 260-5, DPOs)
- Tax Administration Act 1953, Division 269 (Director Penalty Notices)
- Inspector-General of Taxation Act 2003
- Bankruptcy Act 1966, s 82(3) (non-provable debts)
Frequently asked questions
Does GIC stop accruing once I enter a payment plan?+
What happens if I miss a payment plan instalment?+
Can a company apply for serious hardship release?+
Where can I get free help with ATO debt disputes?+
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