If you find yourself owing money to the Australian Taxation Office (ATO), and you weren’t prepared for it, there are options available to you.
What happens if you fail to make your tax payments on time?
According to the Australian Taxation Office (ATO), they will first contact you. From there, the ATO will apply the general interest charge (which is currently 11.36% per annum) on your unpaid amounts. Finally, the ATO will take firmer action if you’re unwilling to work with them to repay your debt or you repeatedly default on agreed payment plans.
That firmer action may include the garnishing of wages, legal action or bankruptcy proceedings.
So you might be wondering: what are your options if you’re unable to pay your tax debts straight away?
Option 1: depending on your circumstances, might be to consolidate your tax debts into your home loan. Here’s how it works:
- You refinance your home loan.
- You take out a new mortgage that is large enough to cover both your property debt and tax debt.
- You use these funds to pay off your tax debt.
The advantage of tax debt consolidation is that you’ll get to clear your tax debt.
The disadvantage is that you’ll have to pay interest on the loan you take out to repay the tax debt. Also, there are costs associated with refinancing your home loan (although you may save money in the long run if you’re able to switch to a lower interest rate).
You will also require equity – meaning your property has increased in value since you took out the loan – that your lender is willing for you to access.
Please speak to a mortgage broker first, to get a full understanding of how a tax debt refinance works and the costs involved. It might also be a good idea to speak to a financial adviser.
Option 2: could be to take out a personal loan to cover the debt. A broker can compare loans to find one that suits your needs and offers a competitive rate. This usually carries a higher interest rate than a home loan, but could be right depending on your circumstances.
Get in touch if you have tax debt and are thinking of consolidating it into your home loan or a personal loan. I’ll explain your options to you, so you can make an informed decision about how to proceed.
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