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What happens if I don’t pay my tax debt?

Written by Ken Bond • Consultant
Published on 02 Dec 2016

Our best piece of advice to anyone who wants to avoid being in tax debt is to just stay on top of, and pay your taxes. If you do end up in a tax debt, then the next best thing to do is to start paying it off with an organised payment plan with the taxation office.

Now you may find yourself in a situation where you haven’t done either of these things, and you are now stuck with a tax debt that you aren’t paying off. What are some of your potential consequences?

So what happens if I don’t pay tax debt?

Here are the first two things that will start to happen if you don’t pay on time:

  • Interest will build up on your tax debt
  • Your tax refunds will be used to reduce your debt

If you don’t pay your debt at all:

  • You will be contacted after the due date via SMS, messages to your MyGov account, letters, and Phone Call.
  • Your debts may be referred to an external collection agency for collection on behalf of the ATO.
  • Stronger action may be taken if you are not cooperative with the ATO.

If you can’t pay your tax debts on time, it’s a good idea to maintain a healthy line of communication with the ATO. Make sure you are lodging your activity statements and tax returns promptly and on time, even if you can’t manage to pay before the due date. By doing this you can avoid being penalised for failing to lodge on time. This will also show the ATO that you are aware of your obligations.

What kind of stronger action could be taken?

Garnishee Notices

One of the first things the ATO will do if you haven’t paid your tax debt by the due date is issuing a garnishee notice to a person or business that holds money for you, or may hold money for you in the future. This notice requires the individual or business to pay your money directly to the ATO to pay of your debt. A copy will be sent to you so that you can be made aware of the arrangement.

For individuals, a garnishee notice may be sent to:

  • Your employer or contractor
  • Banks, financial institutions and building societies where you have accounts
  • People who owe money to you from the sale of real estate, such as purchasers, real estate agents and solicitors.

If you are a business, the ATO may issue a garnishee notice to your financial institution, trade debtors and suppliers of merchant card facilities.

Director Penalty Notice

Directors can incur penalties equal to their company’s unpaid PAYG withholding liabilities or superannuation guarantee charge. The ATO may issue a director penalty notice to enable us to start legal proceedings to recover the penalty.

Even without issuing a notice, the ATO can collect the penalty by other means, such as withholding a tax refund.

In some cases we may take legal action to recover outstanding tax and super debts.

The best time to plant a tree was 20 years ago. The second best time is now.”

-Chinese Proverb

Source: ATO,


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Ken is a Certified Taxation Advisor and joined Fitzpatrick Group in 2006 after 31 years with one of Australia’s largest banks, where he held a variety of management positions from Branch Manager to Senior Business Banking Manager.
Authour • Ken Bond

Consultant, Fitzpatrick Group

Post Categories: Tax Essentials
Post Tags debt / penalties / Tax / tax debt

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