Owing money to the ATO can be stressful — but the ATO is generally willing to work with businesses and individuals who approach them proactively and in good faith. A payment arrangement (commonly called a "payment plan") allows you to pay your debt over time rather than in a lump sum. Here is everything you need to know about setting one up in 2025-26.
Can You Set Up a Payment Plan With the ATO?
Yes. The ATO has a formal payment plan program for both individuals and businesses who cannot pay their tax debt in full by the due date. The ATO calls these "payment arrangements" internally, but they function the same as instalment plans.
The ATO approves payment plans when:
- You have a genuine inability to pay the full amount by the due date
- You have a realistic capacity to make regular payments
- You are up to date with all current lodgements (BAS, tax returns)
- You approach them before enforcement action begins
The ATO is far more sympathetic to taxpayers who contact them before the debt is overdue than those who wait until debt collectors are involved.
ATO General Interest Charge (GIC) 2025-26
One of the most important things to understand about ATO debt is that interest accrues daily — even while a payment plan is in place.
The ATO General Interest Charge (GIC) rate for FY 2025-26 is 11.38% per annum, applied daily on outstanding tax debt. This is compounded daily.
What this means in practice: On a $20,000 debt at 11.38% p.a.:
- Daily interest: $20,000 × 11.38% ÷ 365 = $6.24 per day
- Monthly interest: approximately $190 per month
- 6 months without a payment plan: approximately $1,138 in additional interest
- 12 months: approximately $2,276 in additional interest
This is why time matters. Every day you delay requesting a payment plan, your debt grows. Our free ATO Payment Plan Calculator shows you exactly how much interest is accruing on your specific debt amount and how different payment amounts affect your total cost.
How to Apply for an ATO Payment Plan
There are three ways to apply:
Option 1: Online via myGov (simplest for debts under $100,000) Log into myGov → Link your ATO account → Select "Manage your payment plan." You can set up, modify, or cancel a plan online for most standard tax debts. The ATO approves many online applications automatically.
Option 2: By phone
- Individuals: 13 28 65
- Small business: 13 11 42
- Have your tax file number (TFN) and details of your financial position ready. The ATO will ask about your income, essential expenses, and other debts.
Option 3: Written request (required for complex situations) For debts over $100,000, Director Penalty Notices, or where a previous plan has been refused, the ATO typically requires a written request with full financial disclosure. This is where a professional letter — and a well-prepared summary of your financial position — significantly improves your chances.
What the ATO Looks At When Assessing Your Request
The ATO reviews your request based on:
1. Your income and assets. What do you earn? What property, savings, or assets do you have? Could you sell assets to pay the debt?
2. Your essential expenses. Rent, food, utilities, transport, insurance, medical costs. The ATO uses a "basic allowable living expenses" framework to determine what is essential.
3. Your surplus. Income minus essential expenses. The ATO generally expects you to direct most of your surplus toward the debt — they are not likely to approve a plan where you are paying $100/month on a $50,000 debt if your surplus is $2,000/month.
4. Your compliance history. Are your returns lodged? Have you had previous plans that you defaulted on?
5. The reasons for hardship. Business downturn, illness, natural disaster, and relationship breakdown are recognised hardship reasons. The ATO requires documentation for significant hardship claims.
How to Write a Hardship Letter to the ATO
If your situation is complex, a well-written hardship letter significantly improves your approval chances. Key elements:
Opening: Formally state your debt amount, type, and period.
Financial position: Clearly describe your monthly income, essential expenses, and available surplus. Be specific with dollar figures.
Reason for hardship: Explain clearly why you cannot pay in full. Use professional, factual language. Avoid emotional appeals — stick to financial facts.
Proposed arrangement: State clearly how much you can pay per month, when you can start, and your expected payoff date.
Commitment statement: Acknowledge the General Interest Charge and express your commitment to meeting the arrangement.
Our ATO Payment Plan Calculator generates a professionally formatted hardship letter based on your financial details — ready to submit to the ATO.
Calculate What You Can Afford
Before contacting the ATO, calculate what you can realistically commit to:
Monthly surplus = Monthly income after tax − Essential expenses − Other debt payments
Recommended payment = 85% of monthly surplus (keeping 15% as a buffer for unexpected expenses)
For example, if your monthly income is $5,500, essential expenses are $3,200, and other debt payments are $300: Surplus = $5,500 − $3,200 − $300 = $2,000 Recommended payment = $2,000 × 85% = $1,700/month
At $1,700/month with the GIC rate of 11.38% p.a., a $25,000 debt would be cleared in approximately 15 months, with total interest of around $1,900.
Use our ATO Payment Plan Calculator to see multiple scenarios (aggressive, recommended, and conservative repayment rates) and the exact payoff date and total interest for each.
Can the ATO Waive Interest?
Yes, but it is not automatic. The ATO can remit (partially or fully waive) the General Interest Charge in certain circumstances. Remission requests must be made separately, in writing, and are assessed on a case-by-case basis.
Factors that support a remission request:
- The debt arose from circumstances genuinely outside your control (natural disaster, serious illness)
- You have a strong compliance history
- You proactively contacted the ATO before the debt became overdue
- The ATO's own administrative error contributed to the debt
Interest remission is more likely to be granted partially (e.g., waiving post-arrangement interest if you pay the plan on time) than in full.
What If the ATO Refuses Your Payment Plan?
If the ATO refuses your payment arrangement request:
- Ask for a review. You can request a review of the decision by a different ATO officer.
- Engage a registered tax agent. Tax agents have established relationships with ATO officers and can often negotiate arrangements that individuals cannot.
- Consider the Inspector-General of Taxation. If you believe the ATO has acted unreasonably, you can complain to the Inspector-General of Taxation.
- Explore insolvency options (last resort). If debts are unmanageable, bankruptcy (individuals) or voluntary administration (companies) may provide relief — but these are serious steps with long-term consequences.
FAQs
Will the ATO suspend GIC during a payment plan? No — interest continues to accrue during a payment plan unless you specifically request remission and it is approved. This is why making payments as large as you can sustain minimises total cost.
Can businesses also get a payment plan? Yes. Both individuals and businesses (sole traders, companies, trusts, partnerships) can apply for payment arrangements. Company directors should be aware that Director Penalty Notices can make them personally liable for company tax debts including unpaid superannuation and PAYG withholding.
What happens if I miss a payment plan instalment? Missing an instalment can cause the ATO to cancel your payment arrangement and issue a demand for the full outstanding balance. Contact the ATO immediately if you think you will miss a payment — they may allow a modification. Do not simply skip a payment without warning.
Use our free ATO Payment Plan Calculator to calculate your optimal payment plan and generate a professional hardship letter. Free to use, no login required.
Disclaimer: This guide is for informational purposes only and does not constitute legal or financial advice. ATO decisions are made on a case-by-case basis. For advice specific to your situation, consult a registered tax agent.