Can’t pay your tax bill? You’re not alone – and you’re not without options. Every year, thousands of Australians find themselves in the same position: owing money to the ATO and feeling unsure of what to do next. Many are tempted to put off lodging their tax return entirely, thinking it’s safer to wait than to admit to a debt they can’t afford. But this instinct, while understandable, often causes far more harm than good.
If you lodge your return on time – even when you can’t pay your tax bill – you can often avoid penalties, reduce interest charges and unlock more flexible solutions from the ATO. The key is understanding the difference between lodgement and payment. While both are required by law, failing to lodge is viewed far more seriously than not paying straight away.
Let’s explore why it’s crucial to lodge your return on time, even if you’re not yet able to pay, and what help is available when you’re overwhelmed by tax debt.
Can’t Pay Your Tax Bill? Here’s Why Lodging Still Matters
The ATO separates your obligation to lodge from your obligation to pay. That means even if you can’t pay your tax bill immediately, submitting your return on time still works in your favour. Lodgement signals that you’re trying to do the right thing and it gives the ATO a starting point for helping you manage the debt.
When you don’t lodge your return, the ATO applies a “Failure to Lodge on Time” (FTL) penalty. This starts at $313 for individuals and increases the longer you delay – up to a maximum of $1,565. For businesses, the penalty is higher still. Lodging late also leads to additional general interest charges (GIC), which are applied from the original due date, even if you only recently submitted your return.
On the other hand, if you lodge and notify the ATO that you can’t pay your tax bill right away, you’ll usually be given the chance to arrange a payment plan or apply for support. You’ll also avoid default assessments, which are often higher than the actual amount owed.
In short, lodging gives you control. Avoiding it just compounds the problem.
What Happens If You Lodge But Can’t Pay?
If you lodge your tax return and find out you owe money that you can’t afford to pay, the ATO won’t automatically take punitive action. Instead, they’ll assess your situation and encourage you to engage.
Typically, you’ll receive a Notice of Assessment, which tells you the amount due and when it must be paid (usually within 21 days). If payment isn’t received by the due date and you haven’t contacted the ATO, interest will begin to accrue. However, the ATO is generally open to working with taxpayers who are proactive.
For example, you may be eligible for an online payment plan if your debt is under $100,000. This allows you to pay in instalments and avoid enforcement action, provided you stick to the agreed schedule. If you can’t meet those terms due to financial hardship, more tailored solutions – like reduced payment arrangements or interest remission – may be available.
You can only access these options after lodging. If you haven’t lodged, there’s nothing for the ATO to negotiate with.
What If You Don’t Lodge at All?
Failing to lodge a return because you can’t pay your tax bill is one of the most damaging decisions you can make. Eventually, the ATO will take action to force compliance – and the consequences can be costly.
If you avoid lodging, the ATO may issue a default assessment. This is essentially an estimate of your income and tax liability, calculated without deductions or offsets. Because it’s based on limited information, it’s often higher than your actual liability. And since you didn’t lodge the return yourself, it can be harder to dispute or reverse the assessment.
The ATO may also:
- Cancel your ABN if you’re a sole trader or small business.
- Refer your debt to external collection agencies.
- Apply penalties and interest that far exceed your original debt.
- Initiate legal recovery actions if no engagement occurs.
Even if your reason for not lodging is that you can’t pay your tax bill, the ATO sees continued silence as avoidance – and that changes how they respond.
No, You Won’t Go to Jail for Being in Debt – But There Are Risks
It’s important to note that you won’t go to jail just because you can’t pay your tax bill. The ATO doesn’t seek criminal penalties for ordinary unpaid tax debts unless fraud or deliberate evasion is involved. That said, ignoring the issue for long enough can result in court judgments, bankruptcy proceedings and serious stress.
That’s why lodging is always the safest, smartest first step – even if you feel overwhelmed by the debt that follows.
What to Do If You Can’t Pay Your Tax Bill
If you’ve lodged your return and received a tax bill that you genuinely can’t afford to pay, the ATO has several avenues for relief:
- Payment Plans – You can apply for a payment arrangement that splits your debt into smaller, manageable instalments. Many plans can be set up online.
- Interest Remission – If your situation involves genuine financial hardship, you may be able to apply to have some of the interest waived or reduced.
- Debt Compromise – In rare cases, where a taxpayer has no capacity to pay the full amount now or in the foreseeable future, the ATO may agree to a reduced payment in full and final settlement of the debt.
- Tax Agent or Negotiator Support – Working with a registered tax professional or negotiator can improve your outcome. They understand the ATO’s systems, know what options to pursue, and can help you present a stronger case.
Remember: these options only become available once you’ve lodged.
Why So Many People Delay – and Why You Shouldn’t
Many Australians delay lodging because they feel ashamed or afraid of what they’ll owe. But fear doesn’t make the debt go away. In fact, it usually makes it worse.
When you lodge your return, even if you can’t pay your tax bill, you’re taking control. You’re showing the ATO that you’re willing to engage, which gives them more reason to support you instead of escalating enforcement. And with the right guidance, you can often reach an outcome that’s manageable, rather than overwhelming.
How Tax Negotiators Can Help
At Tax Negotiators, we specialise in helping clients who feel stuck, stressed, or confused about their tax debt. Whether you haven’t lodged in years, or just received a tax bill you can’t afford, we can guide you through every step.
We’ll:
- Lodge overdue returns fast
- Negotiate a payment plan or interest relief on your behalf
- Prevent ATO enforcement before it begins
- Act as your voice with the ATO so you don’t have to deal with the pressure directly
Final Thought: Can’t Pay Your Tax Bill? Lodge Anyway.
The bottom line is simple: lodge first, deal with the payment second. If you can’t pay your tax bill right now, that’s okay. But if you ignore your obligations entirely, the consequences will only grow.
Take the first step toward financial clarity. Reach out to Tax Negotiators today – and let us help you find a clear, confident way forward.
