A Debt Agreement?
A Debt Agreement is a legally binding agreement between you and your creditors. Here’s how it works:
You negotiate to pay a percentage of your combined debt that you can afford over a period of time.
You make repayments to your debt agreement administrator, rather than individual payments to your creditors.
After you complete the payments and the agreement ends, your creditors can’t recover the rest of the money you owe.
HOW CAN IT HELP
with my Tax Debt?
The ATO does not have the power to forgive the primary part of a persons tax debt. You may see or hear of debt forgiveness for individuals (persons) but that will refer to two situations:
forgiveness of penalties and interest and not the primary tax debt – so, a person cannot negotiate a reduction in primary tax debt.
Formal agreements to forgive a tax debt by using a formal insolvency procedure – and a Debt Agreement is one of those formal procedures!!!
To be clear, this is not done by “negotiation” with the ATO, but rather through formal insolvency process under the Bankrutcy Act
WHAT KIND OF
Debt Haircuts Can Be Achieved Through a Debt Agreement
That’s the good bit. The ATO will consider a proposal put as part of a Debt Agreement on its merits. That means, the ATO will look at the proposal commercially and will likely accept what you can reasonably afford to pay.
WHAT ARE THE
Eligibility Critera for a Debt Agreement
You are insolvent – can’t pay your debts as they fall due
The value of your property is less than $275,074
You’re total unsecured debts are less than (about) $137,537
You’re after tax income is less than $103,153
You haven’t entered a Debt Agreement or Bankruptcy in the last 10 years
WHAT’S A TYPICAL EXAMPLE OF
When to use a Debt Agreement
For many years during and after COVID, companies traded on and the ATO didn’t pursue payment of the Company tax debt. Recently, the ATO has started issuing Director Penalty Notices to director’s of companies – those DPN’s can make a director personally liable for the tax debts of the company.
So, we are finding many examples of directors that became personally liable for their company’s tax debt. Sometimes directors missed the DPN Notices and became aware when that liability appeared on their personal tax bill. If that tax debt debt is between $50,000 and $137,000 then a Debt Agreement may be the best solution.
IT SOUNDS COMPLICATED!!!
Yes it is! That’s why we suggest you:
Take our free online Tax Debt Solution analysis
Read more about Debt Agreements here
Our professional memberships
Association of Independent
Board Member in-house
Our Experienced Team
Small Business Restructuring Practitioner (SBRP)
Registered Debt Agreement Administrator (RDAA)