Can you negotiate a tax debt with the ATO?

Yes, but probably not in the way you hope. You can negotiate when you pay, through a payment plan, and you can ask the Australian Taxation Office (ATO) to reduce interest and penalties. Informal negotiation won’t reduce the tax a company owes. For a company, you can only compromise the debt through a formal process such as small business restructuring or voluntary administration.

If the company’s debt includes PAYG withholding, GST or super, a second question matters as much: whether it has become, or could become, your personal liability as a director.

A payment plan changes when you pay, not what you owe

The ATO offers payment plans that let you pay a tax debt in instalments. If you owe $200,000 or less, you may be able to set one up through the ATO’s online services; larger debts are arranged directly with the ATO.

A payment plan buys time. It doesn’t reduce the debt, and the general interest charge (GIC) keeps compounding daily on the balance while you pay. GIC incurred from 1 July 2025 is also no longer tax-deductible, so carrying an ATO debt now costs more than it used to.

A payment plan suits a fundamentally sound business that needs time to catch up. It suits a business poorly when it only delays a deeper problem, because interest keeps building and the options to deal with the debt properly narrow.

For directors, a payment plan also doesn’t remit a director penalty. While a plan covering the debt is in force, the ATO can’t start proceedings to recover the penalty, but it can still issue a director penalty notice, and that protection ends if the plan is defaulted on.

Asking the ATO to reduce interest and penalties

You can ask the ATO to remit some or all of the GIC. It considers whether the delay in paying was outside your control and, if not, whether it would be fair and reasonable to remit. The ATO can also remit penalties at its discretion. Neither is a right, and the ATO decides.

Requests are stronger when the company’s lodgements are up to date, you explain and document the cause of the delay, and you engage with the ATO early rather than after enforcement has begun.

It is also worth checking that the debt is right. If an assessment is wrong, objecting to it is a legitimate way to reduce what you owe.

Can the tax debt itself be reduced?

This is where individuals and companies part ways.

Individuals

The ATO can release an individual from some tax debts where paying them would cause financial hardship. Release can cover income tax, PAYG instalments, fringe benefits tax and the Medicare levy, among others. It can’t cover GST, PAYG withholding, the super guarantee charge or director penalties. You must lodge all outstanding returns and activity statements before the ATO will consider an application, and the ATO’s debt release tool shows whether you are eligible to apply.

Companies

Companies, trusts and partnerships can’t apply for release. There is no general ATO “debt forgiveness” scheme, and a phone call won’t reduce a company’s tax debt. For a company, you can only compromise the debt through a formal process.

If personal tax debt is part of a wider personal debt problem, the personal insolvency options are a separate conversation.

How a formal process can compromise company tax debt

Small business restructuring

An eligible company with liabilities of no more than $1 million can appoint a small business restructuring practitioner and put a plan to its creditors, including the ATO, while the directors stay in control of the business.

The company’s tax lodgements must be up to date, and it must pay employee entitlements before creditors vote on whether to accept a plan. Where it fits, it can reduce what the company owes rather than only reschedule it.

Voluntary administration

An independent administrator takes control, and creditors decide the company’s future. This can be a deed of company arrangement, a compromise agreed by creditors that binds the ATO and other unsecured creditors. It is a heavier process than small business restructuring, and it suits companies that don’t qualify for restructuring or need more protection while a deal is worked out.

Neither is right for every business. If the business can’t be saved, a payment plan or restructure only adds cost, and an orderly exit may be better. If a business can be saved, we’ll say so, and if it can’t, we’ll say that too.

If you have received a director penalty notice, appointing an administrator or restructuring practitioner within the 21 days remits a non-lockdown penalty. It doesn’t remit amounts that are locked down. Our guide to director penalty notices explains the difference.

What happens if nothing changes

An ATO debt left alone doesn’t stay still. Interest keeps compounding, and the ATO can move to firmer action: director penalty notices, garnishee notices to the company’s bank or customers, a statutory demand and, in the end, an application to wind the company up.

The options are widest at the start. Early on, a payment plan, a remission request or a restructure while you stay in control are all still available. Once enforcement is under way, some of those doors have already closed.

How Rapsey Griffiths can help

If the company owes the ATO more than it can clear, Rapsey Griffiths can give you a confidential view of where you stand: whether a payment plan is realistic, whether you have any personal exposure as a director and whether a formal restructure would change what the company owes. You’ll deal directly with Mitch Griffiths or Chad Rapsey, Registered Liquidators, Trustees and Chartered Accountants, and we can work alongside your accountant. Book a free confidential chat today with our team.

Last updated 11 November 2026. This is general information, not advice for your situation.