What can I do if I owe taxes and cannot pay?

If you owe taxes and cannot pay, you are not without options. The ATO offers payment plans, hardship provisions, and compromise arrangements — but you must act before enforcement action begins. Ignoring the debt is the worst option; proactive communication dramatically improves your outcome.

Contact the ATO Immediately

The single most important thing you can do is contact the ATO before the debt becomes overdue. The ATO is significantly more lenient toward taxpayers who proactively communicate and set up arrangements before defaulting. If you wait for the ATO to chase you, you have far less leverage.

You can reach the ATO via:

• Online through MyGov (ATO linked services)
• Phone: 13 11 42 (individual enquiries) or 13 72 26 (business)
• In person at a Tax Office location (booked appointments)

Payment Plans (Installment Arrangements)

The ATO offers payment plans that let you pay off your tax debt in regular instalments. For debts under $100,000, you can typically set up a plan online without formal application — you just need to propose an affordable amount. The ATO will assess whether the instalment amount is reasonable given your income and expenses.

For debts over $100,000 or complex situations, the ATO may require a formal instalment arrangement application with supporting financial statements. Interest (GIC) continues to accrue on the outstanding balance, but enforcement action stops while the plan is maintained.

Financial Hardship Provisions

If you are experiencing genuine financial hardship — illness, job loss, business failure — you can apply for a hardship variation to reduce your payments or temporarily suspend them. You will need to provide evidence: medical certificates, bank statements, payslips, and a statement of assets and liabilities. The ATO has dedicated hardship officers who assess these applications on a case-by-case basis.

Compromise and Settlement

In rare and exceptional circumstances, the ATO may accept a compromise — accepting less than the full tax debt as payment in full. This is generally only available to companies or individuals who can demonstrate they cannot pay the full amount and have no realistic prospects of doing so. The ATO uses the different view of insolvency test, and compromise applications are assessed by a senior ATO committee.

What NOT to Do

The worst thing you can do is ignore ATO correspondence. If you ignore a default assessment or a notice of assessment, the ATO will proceed to enforcement without further notice. Missing correspondence that leads to garnishee notices on your wages or bank accounts is far harder to reverse than engaging early. If you receive a summons or court document, treat it as urgent — seek legal advice immediately.