What are some advantages of using this repayment plan?

Struggling to lodge and pay your tax? The worst thing you can do is stick your head in the sand. By letting the ATO know about your situation, you can avoid worsening debt and potential legal action. You may also be able to apply for a payment plan to spread the cost.

Table of Contents Show

What is an ATO payment plan?
Why enter into a payment plan?
Do I qualify for a payment plan?
How do I set up a payment plan?
What if a payment plan can’t be agreed?
Make a payment plan, your plan
What is Income-Driven Repayment?
Am I eligible for income-driven repayment?
Private loans
Advantages of Income-Driven Repayment
Payments are tied to your income
Your monthly payments won’t be altered if your income increases
Possibility for loan forgiveness
Disadvantages of Income-Driven Repayment
Accrue more interest
Change in income will not affect your payments
Who Should Sign Up For An Income-Driven Repayment Plan?
How Do I Sign Up For Income-Driven Repayment?

What is an ATO payment plan?

An ATO payment plan is a formal agreement made between the ATO and an individual or business with tax debt. Like other types of payment plan, it allows you to pay back what you owe in instalments over an approved period, instead of at once in full.

Under an ATO payment plan, interest is charged on the amount owing. However, if you’re a small business with activity statement debt you may be able to pay it off interest-free over 12 months, provided you have a good history of tax lodgments and payments.

Why enter into a payment plan?

Having tax debt is a serious issue and can lead to serious action being taken against you or your business. By entering into a payment plan, you’re agreeing to pay your debt but in manageable chunks. This can help you avoid further financial strife.

If you don’t enter into a payment plan and continue to leave your tax debt unpaid, the ATO may claw what you owe back from your future refunds or credits or call in an external recovery agent.

Beyond this, they can take more serious legal action including issuing a garnishee notice, director penalty notice, or a statutory demand. If you fail to respond to the latter, your business may be wound up in court.

Importantly, if you enter into a payment plan, don’t default on your payments. Doing so may result in the ATO imposing stricter requirements before agreeing to a new one.

Do I qualify for a payment plan?

Any individual or business with tax debt can apply to the ATO for a payment plan, provided the debt isn’t in dispute.

How do I set up a payment plan?

If you’re a sole trader, or your income tax or activity statement debt is under $100,000, you can apply for an ATO payment plan online. You’ll need a MyGov account linked to the ATO to do this. Use their payment plan estimator to work out what you can afford.

Alternatively, you can arrange a payment plan or make a late payment by calling their automated phone service. Make sure you have your tax file number (TFN) and Australian business number (ABN) to hand.

If debt is over $100,000, you must call to discuss your options. They may need more information on your circumstances before a payment plan can be agreed. To help your case, be as transparent and proactive in improving your situation as possible.

Using an agent? They can register for you via the Tax Agent Portal or BAS Portal.

What if a payment plan can’t be agreed?

If you’re unable to agree a payment plan, the ATO might consider accepting an offer of security instead to delay payment of the debt. Preferred securities are a registered mortgage over a freehold property or an unconditional bank guarantee from an Australian bank.

Another option is to apply for a tax debt loan. This can be used to pay off your debt, or provide an up-front payment to secure a payment plan and the interest may also be tax deductible.

If paying your debt would cause serious hardship, such as not being able to feed or provide accommodation for your family, the ATO may release you from some or all of it.

Make a payment plan, your plan

The ATO created payment plans to help struggling individuals and businesses, so if you’re unable to pay your tax debt, apply for one. While you’ll likely incur interest, you’re giving yourself the chance to get back on track and prevent things from escalating.

For more information on business tax debts, check out our tax debt page here.

If you’re struggling with tax debt, or in a financial situation that’s getting more difficult to handle alone, try our Instant Online Assessment to see what your options are. Alternatively, speak to one of the team now for professional, and non-judgemental advice.

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The government offers Income-Driven Repayment plans for individuals struggling to pay their monthly student loan bills. These repayment plans require you to pay a fixed percentage of your monthly income and extend your loan for 20 or 25 years.

What is Income-Driven Repayment?

The federal government offers four income-driven repayment options, all of which are tied to your income.

REPAYE – Under the revised pay as you earn plan, you will pay 10% of your monthly discretionary income for 20 years if you were an undergraduate student, and 25 years if you were a graduate student. You will always pay 10% of your monthly discretionary income, regardless of changes to your income or family size.

PAYE – You will pay 10% of your monthly discretionary income for 20 years. If your income increases, you will never be asked to pay more than you would have under a standard repayment plan.

Income-Based Repayment – Similar to the PAYE plan, you will pay 10% of your monthly discretionary income for 20 years, and you will never be asked to pay more than you would have under a standard repayment plan.

Income Contingent Repayment – You will pay the lesser of 20% of your discretionary income or what you would pay on a fixed payment for 12-years on a standard repayment plan.

Am I eligible for income-driven repayment?

Any student with federal loans is eligible for the REPAYE and ICR repayment options. You are eligible for the PAYE and IBR options if your monthly payment will be lower than what you are currently paying on your standard or consolidated loan plan.

Those with Parent PLUS loans are only eligible for the ICR program.

If you are in default of your federal loans, you will not be eligible for Income-Driven Repayment.

Private loans

Private loans are not eligible for the government’s income-driven repayment program. If you are struggling to make your monthly private loan payment, contact your lender to see what options may be available to you. It’s possible your lender will offer you a similar payment schedule.

Advantages of Income-Driven Repayment

The primary benefit of income-driven repayment options is that they lower your monthly payments, at least in the beginning. If you’re struggling to meet your fixed payment, these plans will give you a more realistic monthly payment. This makes income-driven repayment plans a great option for those entering into low-paying occupations, or who are suffering financial difficulties.

Payments are tied to your income

Income-driven repayment plans allow you to petition your servicer for a change in the monthly payment if you’ve recently experienced a change in your financial situation. On a fixed repayment plan, you risk delinquency and default if you suffer financial hardship, such as a loss of job or salary reduction. With income-driven repayment plans, your monthly payment will reflect your most current financial reality.

Your monthly payments won’t be altered if your income increases

If your income increases while you are doing a repayment plan, your principal will stay the same. The principal is the money that you originally agreed to pay back. Your monthly payments might change if your lender reviews your account and determines that payments should increase. Your lender will notify you if your payments will be affected by the change in your income.

Possibility for loan forgiveness

All four income-driven repayment plans offer the potential for partial loan forgiveness. Any loan debt that remains upon the end of your 20 or 25-year loan term is forgiven.

Disadvantages of Income-Driven Repayment

The first disadvantage to Income-Driven Repayment plans is the length of the loan. Under standard repayment options, you’re debt-free in 10 years. With Income-driven repayment plans, you’re still making monthly payments 20 years later.

It may not seem like a big deal when you’re fresh out of college, but it can turn burdensome if you’re still repaying your loans when the time comes to file your son or daughter’s FAFSA®.

Accrue more interest

While income-driven plans allow you to pay less money today, you will likely end up paying more money in the long run. Due to the extended loan terms, you will end up accruing more interest over the life of the loan, which means you end up paying more money than you would under a standard repayment plan.

Change in income will not affect your payments

Your monthly payments not being affected by a change in your income can be a curse and a blessing. If your income has increased, your monthly payments not changing will be a blessing. However, if your income decreases your monthly payments not changing might cause some problems, especially if you can’t afford the amount you agreed to pay monthly. If this is the case, contact your lender to let them know about your income changes. The lender will review your account and determine whether you qualify for a monthly payment arrangement or not.

Anyone struggling to make their monthly loan repayments should consider income-driven repayment options. Since the repayment plans are so lengthy, income-driven repayment plans are best suited towards individuals who are regularly struggling to repay their federal student loans. They are an extremely attractive option for those who anticipate careers in low-salaried fields.

If you are experiencing a temporary financial setback, such as a loss of job, or temporarily reduced salary, then you may want to consider alternate routes before taking on a 20-25-year commitment.

You can sign up for an income-driven repayment plan on the government website here. You will need your FSA ID to complete the process.