Why has my ATO payment plan defaulted?

The five reasons plans default

• A missed instalment. The ATO's condition is that every agreed instalment is paid by its due date. Missing one may first put the plan into arrears, but an unpaid arrears letter or a further miss ends it.
• A failed direct debit. To the ATO this is the same as a missed instalment. Insufficient funds on the morning of the debit, an expired card or a closed account all count. See my ATO direct debit failed.
• A new tax debt not paid in full. Your plan covers only the debt that existed when it started. A new BAS, PAYG instalment or return liability must be paid in full by its due date or put under its own plan. This is the single most common failure mode for businesses, because the next BAS often lands before cash flow has recovered.
• A late lodgement. Lodging on time is a condition of every plan, even if the amount is nil or you cannot pay it. An overdue BAS or return can default a plan whose instalments were all paid.
• Not acting on an arrears letter. If the plan slipped into arrears and the letter's minimum payment or other required action was not done by its date, the ATO defaults the plan.

How to find out which one it was

1. Log in to ATO online services and open the account the plan was on. The transaction list shows whether an instalment was received, and whether any new amounts posted and stayed unpaid.
2. Check your bank or card statement for the instalment dates. A dishonour fee is a giveaway.
3. Check your lodgement list for anything overdue, including nil BAS and activity statements for quiet quarters.
4. If it is still unclear, phone the ATO's debt line on 13 11 42. Ask specifically which condition was breached and on what date. You will need this for the next conversation anyway.

What happens now and what to do

After a default the full overdue balance becomes immediately payable and the ATO may take firmer action: garnishee notices, director penalty notices for company PAYGW, GST and super, and credit reporting for business debts of $100,000 or more. GIC keeps compounding at 11.43% and is not deductible. This default also counts toward the two defaults in 12 months rule. A second one would close the online channel, as explained in what happens after two defaults.

The most useful thing you can do is fix the cause before you ask for a new plan. If a new BAS caused it, the new plan needs to leave room for BAS. If the instalment was simply too high, propose a lower one over a longer term and say why. If a lodgement was missed, lodge it first; the ATO will not formalise terms around debt it cannot see. The conditions every plan carries are set out in our ATO payment plan guide. For what a stronger second proposal looks like, read how to negotiate a payment plan. If this is the second or third default, the honest question is whether the business can service the debt and its ongoing tax at the same time. Rescue options sets out what else exists.

What to do next

1. Log in to ATO online services and identify the exact condition that was breached and the date.
2. Fix the underlying cause: lodge the overdue return, pay the missed amount, or work out why the instalment was unaffordable.
3. Prepare a new proposal that leaves room for your next BAS before you contact the ATO.
4. If this is your second default in 12 months, get advice before calling, because the online channel is now closed.

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