What happens after two payment plan defaults in 12 months?

What changes after the second default

The first default is a warning. The second changes the process.

• No automatic approval. Online and self-help phone plans for debts up to $200,000 are normally approved on the spot, as our ATO payment plan guide explains. That channel is now closed to you for 12 months from the earlier of the two defaults.
• A person decides. You phone the ATO's debt line and an officer assesses capacity to pay. They can see both defaults and will ask what is different this time.
• Tougher terms are likely. Expect a request for a meaningful upfront payment, a shorter term, and evidence such as recent bank statements or a cash flow forecast.
• Enforcement is live. With no plan in place, the ATO can issue garnishee notices, director penalty notices for company PAYGW, GST and super, and, for business debts of $100,000 or more overdue by more than 90 days, a notice of intent to disclose to credit bureaus. See tax debt credit reporting.
• Interest free plans are off the table. The ATO's interest free arrangement for small activity statement debts requires no more than one default in the last 12 months.

Note that cancelled plans count the same as defaulted ones. Cancelling a plan you cannot afford and starting a new one does not avoid this rule.

How to get a third plan approved

The ATO's real question is whether a third plan will be any different. Answer it before they ask.

1. Name the cause of each default. A bounced debit, a BAS you did not budget for, an instalment that was always too high. Different causes need different fixes, and the officer will notice if you cannot say.
2. Lodge everything first. An unlodged BAS or return is close to a dealbreaker in a negotiated plan.
3. Propose a smaller instalment you are certain of. A conservative figure kept for six months rebuilds more credibility than an ambitious one that fails in month two. Work it out with how much should I offer per month?
4. Offer something upfront. Even a modest lump sum reframes the conversation from serial default to recovery.
5. Bring the evidence unprompted. A one page cash flow showing the instalment and the next BAS both covered does more than any explanation.
6. Consider having someone else make the call. A tax agent or specialist speaking for you signals the situation is being managed differently. See how to negotiate with the ATO.

When a third plan is not the answer

Two defaults in a year usually means the business cannot service the debt and its ongoing tax at the same time. A third plan on the same numbers just adds another year of GIC at 11.43%. If a realistic instalment plus your normal BAS does not fit inside your cash flow, look at the formal options before the ATO chooses one for you. For a company with total liabilities under $1 million, small business restructuring can compromise the debt while trading continues, and the ATO votes on well prepared proposals. For individuals and sole traders, rescue options covers the alternatives.

What to do next

1. Confirm the dates of both defaults or cancellations so you know when the 12 month window ends.
2. Lodge every outstanding BAS and return before you contact the ATO.
3. Prepare a one page cash flow showing a conservative instalment and your next BAS both covered.
4. Phone the ATO with a specific proposal and an upfront amount, or have a tax agent or specialist do it for you.

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