When assessing a request for a payment arrangement, the ATO typically considers several key factors to ensure that the arrangement is feasible for both the taxpayer and the ATO. The focus is not only on addressing the current tax debt but also on ensuring the ongoing viability of the business. Here are the primary considerations:

1. Compliance History

The ATO looks at the taxpayer’s compliance history, including timely lodgment of returns and previous engagement with the ATO. A good compliance history might support the case for a favorable payment arrangement.

2. Current Financial Situation

The taxpayer’s current financial situation is a critical consideration. The ATO requires a clear understanding of the taxpayer’s income, expenses, assets, and liabilities to assess their capacity to meet regular payment obligations.

3. Business Viability

This is where the focus on viability comes in. The ATO evaluates whether the business can remain viable while paying off its tax debt. This involves looking at the business’s profitability, cash flow forecasts, and plans for returning to financial stability. The ATO may require evidence that the business is taking steps to improve its financial situation, such as cost-cutting measures, restructuring, or seeking additional revenue sources.

4. Amount Owed and Repayment Time

The total amount of tax debt owed and the proposed time frame for repayment are also considered. The ATO assesses whether the proposed payment plan is realistic, given the taxpayer’s financial situation and the business’s cash flow projections.

5. Future Tax Obligations

The ability of the taxpayer to meet future tax obligations while repaying existing debt is crucial. The ATO aims to avoid setting up a payment arrangement that could lead to accruing additional tax debts.

6. Communication and Engagement

The taxpayer’s willingness to communicate openly and engage with the ATO is essential. Providing complete and accurate information about the business’s financial situation and future prospects can help the ATO make a more informed decision.

When considering a payment arrangement, the ATO’s primary goal is to collect tax debts in a way that doesn’t push a business into insolvency. The focus on business viability is crucial, as it ensures that the payment arrangement is sustainable and that the business can continue to operate and meet its tax obligations in the future. Taxpayers seeking a payment arrangement should be prepared to provide detailed financial information and demonstrate a commitment to returning to compliance. For the most current information and guidance on payment arrangements with the ATO, including eligibility criteria and application process, it’s recommended to consult directly with the ATO or seek advice from a professional accountant.