If not enough tax is withheld from your income, you must pay the outstanding amount to the ATO. You can request an extension of time to pay the debt, and you can ask to pay the amount in instalments. Also, the ATO can grant relief from paying your tax debt if it decides that collecting the full amount from you would result in you experiencing suffering and serious hardship.
When and how to pay
Generally, if you owe more tax than has been withheld from your income during a financial year, you must pay that tax by 1 December of the following financial year. You can pay your tax by cheque, money order, direct debit, BPAY or at a post office.
The fact that an appeal is pending will not excuse you from meeting your taxation liability by the date specified on the notice of assessment. However, where you are disputing an assessment, the ATO will often agree not to take recovery action while the objection is being decided.
If your objection is disallowed and you exercise your appeal rights, provided there is a genuine dispute, the ATO may continue to defer recovery action provided you pay 50 per cent of the amount in dispute. This amount is refundable, with interest, if you succeed. If you are not successful, the GIC applies to late payments (see “Penalties, interest charges and offences relating to tax returns”).
If you receive a tax refund due to a successful objection, review or appeal, you will be entitled to interest on the amount of the refund for the period in which the tax was overpaid. Any interest received in this way will form a part of your assessable income, though the refunded tax does not.
The ATO may grant an extension of time (essentially, postponing actions to recover tax payable). This extension would not normally exceed 12 months and will not go beyond 15 June in the tax year the assessment is issued. The ATO needs to be satisfied that valid reasons exist to justify the extension and you will also have to pay GIC.
Hence, when you request an extension of time, or permission to pay by instalments, you should prepare a statement that outlines:
• your tax file number, the assessment number, the tax year, the amount of tax involved, and the due date for payment;
• a brief statement of reasons for the application, including your financial position; and
• an offer to pay by a specific date or by instalments beginning and ending on a specific date.
Ideally, you should make an application at least 10 days before the due date for payment but the ATO may extend this time. If you are seeking an extension for more than six months, you should supply the ATO with a statement of your assets and liabilities and other information. Because different parts of the ATO deal with objections and applications for time to pay, these two matters should be kept separate. You should write two letters, one for the objection and one for the time-to-pay application.
The ATO’s discretion to remit further tax is limited to situations where the inability to pay was caused by circumstances outside your control or where “special circumstances” exist. If further tax is to be remitted, some proof of your “innocence” needs to be shown.
In particular circumstances, the ATO may grant relief from tax liability either totally or partially, where it is of the opinion that the collection of the full amount would entail you suffering serious hardship. This might be because of any loss you have suffered, your financial circumstances, or your circumstances if you are a dependant of a deceased taxpayer.
You should make your application for relief to the ATO before the due date for payment, with details of your income, expenditure, assets and liabilities. It generally takes some time for the ATO to act, but in the interim the ATO should take no further legal steps to force payment. You can download the “application for release from payment of some taxation liabilities” form from the ATO’s website and mail it to the ATO, or send your complete form using the online tax agent portal or the business portal.