How much should I offer the ATO per month?

Start from the term, not the number

The ATO's stated preference is the shortest possible fixed period. Online plans for debts of $200,000 or less can run up to 24 months. So the first question is: what does the debt cost per month over 12, 18 and 24 months, before interest?

Then add interest. GIC is 11.43% per year, compounding daily on the reducing balance, and it is no longer deductible. On a plan with even instalments, the total interest is roughly 6% of the starting debt for a 12 month term and roughly 12% for 24 months. So a $50,000 debt over 24 months needs closer to $2,330 a month than $2,083. See does a payment plan charge interest?

Test it against your real cash flow

This is the step people skip, and it is why plans fail. Your monthly figure has to survive three things at once:

1. Normal outgoings. Rent, wages, suppliers, loan repayments, living costs.
2. The next tax debt. Your plan does not include future BAS, PAYG instalments or the next return. Those must be paid in full on time or the plan breaches. If your quarterly BAS is $9,000, that is $3,000 a month you must also find.
3. A bad month. If the number only works when every invoice is paid on time, it is too high.

Put the plan instalment and a monthly share of the next BAS side by side. If they fit with a margin, you have your offer. If they only fit on the best month, go longer or lower. A smaller instalment you are certain of beats a larger one that flatters. This matters twice as much if you have defaulted before; see defaulted payment plan.

What the ATO does with your offer

Online, the system accepts any combination of upfront amount and instalments that clears the debt within 24 months and stays within its limits. Nobody assesses whether you can afford it. That puts the responsibility on you.

By phone, an officer assesses capacity to pay. They look at what caused the debt, your lodgement and payment history, and whether the instalment plus your ongoing tax is realistic. A short term with something upfront is approved far more readily than a long term with nothing upfront. If your honest number needs more than 24 months, say so, explain why, and bring a simple cash flow. The ATO can approve longer terms; it just wants a reason. See what does capacity to pay mean? and how to negotiate a plan.

When no number works

If the debt cannot be cleared in about three years even at an instalment that leaves nothing for a bad month, a payment plan is probably not the right tool on its own. Options include a GIC remission request to reduce the balance, a shorter plan funded partly by finance, or for companies under $1 million in liabilities, small business restructuring. Rescue options compares them.

What to do next

1. Divide your debt by 12, 18 and 24 to see the base monthly figure at each term, then add roughly 6% per year for interest.
2. Write down your next BAS or PAYG instalment as a monthly amount and add it to the instalment.
3. Check the total against an ordinary month, not your best month, and pick the term that leaves a margin.
4. Set the plan up online if it fits inside 24 months, or phone the ATO with your figure and a short explanation if it does not.

More questions: 26 ATO payment plans questions answered · Full guide: ATO payment plans