Refinancing an ATO payment plan

Most failed plans do not fail because the owner stopped caring. They fail because of arithmetic that was never going to work, and the arithmetic is usually the same.

1. 01The instalment was sized against the balance rather than against the cash flow. The number that clears the debt inside the ATO’s preferred window is not always a number the business can pay.
2. 02The next quarter’s BAS was not funded. The plan takes care of the old debt while the new debt builds behind it, and the business ends up needing two payments where it could only make one.
3. 03A seasonal trough was not planned for. A plan set in a strong quarter meets a quiet one.
4. 04A large debtor paid late, and there was no buffer, because the buffer was already going to the ATO.
5. 05The interest kept compounding, so twelve months of instalments moved the balance far less than expected and morale went with it.

Default is rarely a single dramatic event. It is a sequence, and it is worth knowing the shape of it because every stage is easier to answer than the one after it.

1. 01

   A payment misses, or a new liability goes unpaid

   This is the point of maximum choice and minimum drama. A direct debit dishonours, or a new BAS falls due and is not paid, and the plan’s conditions are no longer being met.

2. 02

   The ATO makes contact

   Correspondence arrives and it is specific about what is required. Answering it is materially better than not answering it, even when the answer is that you cannot pay yet.

3. 03

   The plan is cancelled

   When an arrangement fails, the full outstanding balance can become payable immediately and the protection the plan offered against recovery action falls away.

4. 04

   Recovery options reopen

   Disclosure to credit reporting bureaus, garnishee notices, director penalty notices and statutory demands are all back on the table depending on the debt, the entity and the circumstances.

5. 05

   A second plan is negotiated, or it is not

   A further arrangement may be available, and it is usually on tighter terms than the first. Each failed plan narrows what comes next.

Nothing in that sequence is inevitable. What makes it worse in every case is silence. Keep lodging, keep answering correspondence, and put your accountant in the loop early.

Neither column is the right answer in the abstract. A plan is cheaper when the business can carry it. A refinance is better when the plan is only holding because of things you are not doing elsewhere, such as funding the next BAS.

There is a middle option that gets overlooked. Rather than borrowing to clear the whole balance, some businesses borrow to clear enough of it that a new arrangement over the remainder becomes genuinely sustainable.

• It reduces the amount borrowed, which reduces the cost and often widens the lender options.
• It brings the instalment on the residual down to a figure that fits the actual cash flow.
• It demonstrates good faith, which matters when your accountant is discussing an arrangement with the ATO.

The trade-off is real. Many lenders prefer the balance cleared entirely, because a residual leaves an unanswered question. A partial payout has to be presented carefully, with the proposed arrangement over the remainder set out in the file rather than left implied. Any discussion with the ATO about a new arrangement runs through your registered tax agent, not through us.

A plan is not automatically a black mark. What an assessor reads is conduct, and conduct cuts both ways.

• A plan that has been maintained for several months is evidence. It shows the business can commit to a fixed payment and meet it, which is exactly what the assessor is being asked to believe about the new loan.
• A plan that has defaulted is a flag, and it needs an explanation with dates and reasons rather than a shrug.
• Multiple failed plans read as a pattern. That does not close the door, but it moves the file towards specialist lenders and firmer pricing.
• Current lodgements outweigh almost everything else. Being behind on lodging is harder to work around than being behind on paying.

1. 01

   Establish the real number

   The integrated client account balance, the plan terms, what has been paid, and what new liabilities are due before settlement. The target is the payout figure at settlement, not the balance today.

2. 02

   Decide full or partial

   We model both. Clearing everything, and clearing enough that a sustainable arrangement covers the rest. The right answer depends on equity, serviceability and how the next twelve months look.

3. 03

   Choose the structure and the lender

   Secured or unsecured, first or second position, bank or non-bank. Chosen against the file rather than against whichever lender is quickest to say maybe.

4. 04

   Submit, assess, satisfy conditions

   A fresh ATO statement is almost always a condition, dated close to settlement, because the balance keeps moving.

5. 05

   Settle and pay direct

   Funds go to the ATO from settlement rather than through your account. Your accountant confirms the account position afterwards.

6. 06

   Set the next twelve months up

   A separate holding account for BAS and PAYG withholding, funded weekly, and a review booked before the next quarter falls due. The point is not to be back here.

The refinance solves the balance. It does not solve the habit that created it, and that habit is almost always about timing rather than character.

• Put GST and PAYG withholding into a separate account the week you invoice, not the month the BAS falls due. Money that has been moved is money that cannot be spent by accident.
• Lodge on time even in a quarter you cannot pay. Lodgement and payment are separate obligations, and staying lodged keeps arrangements and options available.
• Look at pay-as-you-go instalments with your tax agent if the business has grown. An instalment rate set against a smaller year builds a shortfall quietly.
• Book a review with us before the quarter, not after it. Most difficult files were straightforward ones a few months earlier.