Records and deadlines

Can’t pay your tax or BAS bill? ATO payment plans, interest, and what to do this week

The BAS says you owe $4,800 and the account says you have $1,900. It happens to a lot of sole traders, usually because GST collected during the quarter was spent as if it were income. The ATO deals with this every day and has a routine for it that does not involve debt collectors, provided you do two things: lodge on time, and get in touch before the due date rather than after. This guide covers what the debt costs, how to set up a plan, what to do if even the plan is too much, and how to make sure next quarter is different.

Updated 21 September 2026. General information only, not tax advice.

Lodge first, then deal with the money

Lodging and paying are separate obligations with separate consequences. A BAS or tax return lodged late attracts a failure to lodge penalty, calculated in penalty units for each 28 days it is late, up to five units for a small business (check the ATO for the current value of a penalty unit). A BAS lodged on time and paid late attracts interest but no penalty. So lodge, even if the payment will be nil for now; it also means the ATO knows exactly what you owe, which is the precondition for a payment plan. If you have already missed the lodgment, see missed a BAS first.

What the debt costs: the general interest charge

Unpaid tax accrues the general interest charge from the day after the due date. It compounds daily, at a rate set each quarter from the bank bill rate plus seven percentage points, which has put it around 10% to 11% a year recently; check the ATO for the current rate. Since 1 July 2025 it is not tax deductible, so a $10,000 debt carried for a year costs roughly $1,100 out of after-tax money. The ATO can remit interest in special circumstances, and you can ask, but do not plan on it.

Setting up a payment plan

If your lodgments are up to date and the debt is within the online limit, sign in to ATO online services through myGov, go to Tax, then Payments, then Payment plans, and follow the steps. You choose an upfront amount and weekly, fortnightly or monthly instalments; plans for individuals and sole traders generally run up to two years. The automated phone service on 13 72 26 does the same thing, and a tax or BAS agent can set one up for you.

Three conditions keep a plan alive: pay every instalment, lodge every new BAS and return on time, and pay the new amounts as they fall due. Miss one and the plan defaults and the whole balance becomes payable. Set the instalments up as a direct debit, and if money arrives early, pay it off early, because interest keeps accruing.

If even the plan is too much

Call the ATO before you miss an instalment, not after. Plans can be varied, and a business that rings first is treated very differently from one that goes quiet. If the problem is serious hardship rather than a bad quarter, individuals can apply for release from some tax debts, though not from GST or PAYG withholding, which are money you collected on someone else’s behalf.

Free, independent help exists: the Small Business Debt Helpline on 1800 413 828 and the National Debt Helpline on 1800 007 007 both offer financial counselling at no cost. Talk to them before talking to anyone who charges a fee to negotiate with the ATO for you.

Business tax debts and your credit file

The ATO can report a business tax debt to credit reporting bureaus if you have an ABN, the debt is over $100,000, it has been overdue for more than 90 days, and you are not effectively engaging with the ATO about it. A payment plan you are keeping to counts as engaging, as does a genuine dispute. Most sole traders will never be near that threshold, but it is the reason silence is the one thing not to do.

Stopping it happening next quarter

A BAS you cannot pay usually means the GST in each payment was treated as revenue. The fix is mechanical: move one eleventh of every GST-inclusive receipt into a separate account the day it lands, and a share of the rest for income tax based on your expected rate; see setting aside money for tax for the percentages. If income tax is the problem rather than GST, PAYG instalments spread it across the year, and you can vary them down if income drops. Put the BAS due dates in your calendar with a reminder a fortnight out.

How FlowFi helps

FlowFi’s Tax Pot works out a recommended set-aside from your actual transactions, so you know what to move each time you are paid rather than finding out at the end of the quarter. The BAS page shows the running position from the first week, and reminders go out 14 and 3 days before the due date with the labels attached. A bill you have watched build for three months is one you have the money for.

Email me the quarterly BAS checklist

The checklist now, then a few short notes on getting your BAS done. No spam, unsubscribe any time.

Frequently asked questions

Will a payment plan stop the interest?

No. The general interest charge accrues until the last instalment is paid. You can ask for it to be remitted if there were circumstances outside your control, but a plan on its own does not switch it off.

I can pay the GST but not the income tax. Which should I pay first?

Interest is the same on both, so it makes little difference to the cost. What matters is that everything is lodged on time and the whole balance is covered by a plan. If you have to choose, keep the newest obligations paid, because a plan requires future debts to be met as they fall due, and put the older amount on the plan.

I am expecting a tax refund. Will I still get it while I owe a BAS?

Not in cash. The ATO offsets any refund against your outstanding debts first and pays you whatever is left. That is worth knowing before you count on the refund for something else.

General information only, not tax advice. Check your own situation with a registered tax agent or the ATO.