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Can't Pay Your Tax Debt? Here Are Your Options
Reviewed by Patrick Sargent CA, Registered Tax Agent 25758613·Published 1 April 2026 · Last reviewed 22 April 2026·9 min read
ATO late lodgement penalty: up to $364 per 28 days, capped at $1,820 per document · interest 11.43% p.a. compounding daily · See how to remit them →
What can you do if you can't pay your tax debt?
You have more choices than a single lump-sum payment, and the right one depends on the size of the debt, whether it's personal or business, and how temporary the cash-flow problem is. Below we walk through each option so you can see which fits your situation, then compare them side by side.
This suits anyone who can afford regular payments but not a lump sum. See our full guide to ATO payment plans for how to set one up and what strengthens an application.
A deferral suits a short, clearly explainable gap, such as waiting on an insurance payout or a large invoice being paid. It buys time without committing you to a formal instalment schedule.
Remission doesn't reduce the tax owed itself, only the interest, but on an old debt that can still be a meaningful amount. Read more in our guide to the ATO general interest charge.
Serious hardship release is assessed strictly and generally requires detailed evidence of your financial position. It's not available to companies, only individuals and some sole traders in genuine financial distress.
Settlements are uncommon and generally reserved for cases where full recovery is very unlikely, such as insolvency scenarios. Specialist debt-negotiation services such as TaxPulse (taxpulsehq.com) focus specifically on these negotiations for larger or more entrenched debts.
This is a last-resort path and always needs licensed insolvency or legal advice rather than a tax agent alone, particularly for company directors. See our guide on director penalty notices if company debt has become personal.
Six ways to deal with tax debt you can't pay in full
Option
Who it suits
Effect on interest
Difficulty to get
Instalment arrangement
Most individuals and businesses
GIC usually still applies
Easy for debts under $200,000
Deferral
Short, clearly explainable cash-flow gaps
GIC usually still applies
Moderate - needs a good reason
Interest (GIC) remission
Genuine hardship or exceptional circumstances
Reduces or removes interest only
Moderate to hard
Serious hardship release
Individuals facing genuine financial hardship
Can remove the debt itself
Hard - strict evidence needed
Settlement / compromise
Debts unlikely to be fully recoverable
Reduces the debt itself
Hard - limited circumstances
Insolvency
Debts that genuinely can't be repaid
Debt formally dealt with in the process
Requires licensed insolvency advice
Six ways to deal with tax debt you can't pay in full
What does the ATO do if you ignore a debt?
The ATO escalates in stages, starting with reminder letters and phone calls, then moving to firmer recovery action if a debt is simply left unpaid. This can include a garnishee notice, director penalty action for companies, or referral to credit reporting bureaus for larger business debts.
Garnishee notices are generally used once other contact and payment attempts have failed. Company directors should also be aware that unpaid PAYG withholding, GST or super can become personally payable through a director penalty notice, so ignoring company debt carries extra personal risk.
Why does lodgement always come first?
Because the ATO generally won't agree to a payment plan, deferral or hardship release until your outstanding tax returns and BAS are lodged and the debt figure is confirmed. This is the step people underestimate when they're stressed about debt they haven't fully calculated yet.
If you're behind on lodgements as well as payments, start with our overdue tax returns guide, or go straight to our overdue sole trader or overdue company lodgement services so a real number is on the table before you negotiate anything.
Frequently asked questions
Will the ATO waive tax debt?
Sometimes, but rarely in full. The ATO can waive or reduce debt through serious hardship release for individuals or, in limited cases, a settlement, but the core tax owed is generally still payable. It's the interest and penalties that are more commonly reduced.
What is serious hardship?
Serious hardship means paying the tax debt would leave you unable to provide basic necessities such as food, housing or medical care for yourself or your family. It applies to individuals, not companies, and requires detailed financial evidence to support the application.
Can the ATO take money from my bank account?
Yes, through a garnishee notice the ATO can require your bank, employer or a customer to pay money owed to you directly to the ATO. This is generally used after other contact and recovery attempts have been unsuccessful.
Does ATO debt affect a mortgage application?
It can. Lenders generally check for outstanding tax debt during serviceability assessments, and larger business debts reported to credit bureaus can lower your credit score. Clearing or formalising a plan for the debt before applying usually helps.
Can old debts be settled for less?
Occasionally, in cases where the ATO considers full recovery unlikely or not cost-effective to pursue. Settlements are uncommon and generally require a detailed proposal, sometimes through specialist debt-negotiation services rather than a standard payment plan request.
General information only - not personal tax, financial or legal advice. Consider your own circumstances or speak to a registered tax agent. Remission of penalties or interest and payment plans are decisions of the ATO and outcomes can't be guaranteed.
