My ATO direct debit failed. What happens now?
Short answer
Your plan is now in arrears, and it will default if you do not catch up. A single dishonoured debit does not cancel an ATO payment plan on its own. The ATO sends an arrears letter with a minimum amount and a date. Pay the missed instalment by another method now, then call 13 11 42 so the plan stays alive.
What happens after a dishonour
When a direct debit bounces, the ATO records the instalment as unpaid and your plan moves from active to arrears. Do not assume the ATO will try the debit again. The usual sequence is:
- The ATO issues an arrears letter stating the minimum amount you need to pay now and what you must do to avoid default.
- If you pay that amount by the date given, the plan returns to active and continues as before.
- If you do not, the plan defaults. The whole overdue balance becomes payable immediately and the ATO can move to firmer action, including a garnishee notice.
Your bank may also charge a dishonour fee on its side. The ATO does not add a fee, but general interest charge keeps running on the balance throughout.
How to fix it today
- Pay the missed instalment now by BPAY, card or bank transfer using the payment reference number on your ATO account. Do not wait for the letter.
- Check why it failed. Insufficient funds, a closed or changed account, a card that expired, or a debit that landed before a wage did. Fix the cause or the next one bounces too.
- Update your direct debit details in ATO online services. Changes need one business day's notice for card debits and three business days for bank account debits.
- Call 13 11 42 and tell the ATO the instalment has been paid and the cause is fixed. Ask them to confirm the plan is back to active. If the failure was because of a timing problem, ask to move the debit date to just after your pay day.
If you cannot cover the missed amount at all, say so on the same call. The ATO can often vary the plan for someone who calls before default, and is far less flexible after it.
Plan in arrears and worried it will default?
A specialist can help you renegotiate before it defaults.
Why one default matters more than it looks
A defaulted plan is not just a reset. Two defaulted or cancelled plans within 12 months lock you out of the online and self-help channels, which means every future plan has to be negotiated by phone with evidence of capacity to pay. A business on the small business interest free plan also loses the automatic interest remission. And if you are near the $100,000 threshold for credit reporting, a default is the moment the ATO can decide you are no longer engaging.
If the plan has already defaulted, the debt is still negotiable. See what to do after a defaulted payment plan for how to re-establish one.
What to do next
- Pay the missed instalment today by BPAY or card using your ATO payment reference number.
- Fix the cause: update the account or card details in ATO online services and move the debit date if needed.
- Call 13 11 42, confirm the plan is back to active, and ask for a variation if you cannot keep the current amount.
Related questions
Will the ATO retry a failed direct debit automatically?
Do not rely on it. Treat a dishonoured instalment as unpaid until you have paid it another way or the ATO confirms it has been collected. Paying manually and then checking your account balance in ATO online services is the safe approach.
Does a failed direct debit cancel my payment plan?
Not by itself. It puts the plan into arrears. The plan is cancelled, or defaults, only if you do not pay the arrears amount by the date in the ATO's letter or otherwise fail to meet the plan's conditions, such as lodging on time.
Plan in arrears and worried it will default?
A specialist can help you renegotiate before it defaults.
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