Sisters In Law: What to do if you can’t pay your tax bill

A Queensland worker who has been smashed by the rising cost of living is wondering how she will pay her tax bill and is scared she could end up in big trouble.

Welcome to Sisters In Law, news.com.au’s weekly column solving all of your legal problems. This week, our resident lawyers and real-life sisters Alison and Jillian Barrett from Maurice Blackburn advise about your rights when it comes to a tax bill.

Question:

I’m self-employed and it’s been a tough year with rising costs and an unpredictable work pattern. I also had my first baby last year so money has been tight.

Normally I put a bit of money aside each month in anticipation of my tax bill but this year I just couldn’t.

Now, as the end of the financial year looms, I know I don’t have enough money saved to pay my tax bill – in fact, I have almost nothing.

I’m so scared about what will happen when I file my tax return. Is there any way I can delay paying my tax or set up a payment plan? I’m terrified I’m going to end up in jail if I can’t pay it. – Kerrie, Queensland

The woman is terrified by what her tax bill could be. Picture: PeopleImages/iStock

Answer:

As you’re self-employed you need to pay your own income tax. Often the Australian Taxation Office (ATO) will require businesses, including people who are self-employed, to complete a business activity statement (BAS):

• monthly, if your GST turnover is $20 million or more

• quarterly, if your GST turnover is less than $20 million, or

• annually, if you are voluntarily registered for GST and your GST turnover is under $75,000

As you haven’t paid any of your tax throughout the year, we’ve assumed you are set up to pay annually which means you have to lodge your return and pay your tax by October 31 each year.

The ATO will expect your bill to be paid by the end of October 31. Picture: iStock

Even though you have to pay your tax only annually, the ATO will also require an individual including a sole trader, like you, to enter the pay as you go (PAYG) instalments system for payment of tax once:

• your tax return has instalment income of $4000 or more

• your notice of assessment has tax payable of $1000 or more, or

• you have an estimated (notional) tax of $500 or more

You might consider speaking to the ATO to complete a BAS quarterly next financial year so you’re not left with a large tax bill at the end of the year.

For this year though, if you can’t pay on time then there are support options you can access to meet your tax obligations.

You may be able to set up a payment plan where the payment is broken down into smaller amounts that are made via instalments over a fixed period of time. An agreed sum would then be paid at an agreed interval (for example, weekly or monthly) until the balance is cleared.

You can set up a payment plan via the ATO’s online services through your myGov account if you owe $100,000 or less. You may be required to provide details including your income, expenses, assets, bank balances, creditors and debtors.

You may be able to set up a payment plan where the payment is broken down into smaller amounts that are made via instalments over a fixed period of time. Picture: iStock

If you don’t pay your tax bill, it’s important to speak with the ATO as they have tools and services available that may be able to support you to address the debt while it’s still manageable.

The ATO can also charge interest on any unpaid amount (interest is calculated daily, on a compounding basis) and can even issue garnishee notices or take legal action to recover debts if you don’t work with them to address your debt or you repeatedly default on agreed payment plans.

You should seek legal advice specific to your situation and for more information, you can contact the ATO.

This legal information is general in nature and should not be regarded as specific legal advice or relied upon. Persons requiring particular legal advice should consult a solicitor.

If you have a legal question you would like Alison and Jillian to answer, please email [e-mail].

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