It’s impossible to avoid the tax department, and even harder still to avoid taxation debt if you let it get out of control.
Taxation debt can commonly occur if you work more than one job. This is because, although each job may be taxed at a lower rate, the combined income may well push you into a higher tax bracket and that extra tax would not have been deducted while you were working.
Taxation debt can also occur if you are running your own business and underpay the due tax. The following tips can come in very handy when dealing with this kind of debt:
- Once a debt has been ‘raised’ by the Australian Tax Office (ATO) then a general interest charge (GIC) will start to accrue – the current rate is around 12%.
- If you are working and still receiving the Disability Support Pension, the pension amount is non-taxable. However, if you are on Newstart Allowance it becomes part of your taxable income.
- Tax debts that are not for the current year are cancelled by bankruptcy (see later section on bankruptcy).
- If you have been advised you have a tax debt, contact the ATO immediately so you can arrange a repayment plan. You will have two years to repay this debt by regular instalments.
- If you are experiencing severe financial hardship there are various avenues of relief available. These may include a total write-off, a waiver (until your financial situation improves), removal of any accrued GIC, or a ‘Not Pursue’ order (until you resume working again).