If your business owes money to the ATO and you're struggling to pay, you may not realise that there's a formal process to negotiate a settlement for less than the full amount owed. It's called a Compromise Proposal, and while it's not easy to get approved, it can be a genuine lifeline for those who qualify.
A Compromise Proposal under Section 340-20 of Schedule 1 to the Taxation Administration Act 1953 allows a taxpayer to offer to pay a portion of their tax debt in full settlement. The ATO will consider whether accepting a lesser amount would result in a better outcome for the Commonwealth than pursuing the full debt.
The ATO looks at several factors: your capacity to pay, your asset position, the cost of recovery action, and whether the proposal represents a better return than bankruptcy or liquidation. You need to demonstrate that you genuinely cannot pay the full amount and that the offer is the best the ATO can realistically expect to receive.
Preparing a strong proposal requires detailed financial documentation, a clear explanation of your circumstances, and often professional assistance to present the case effectively. We've helped many clients through this process and understand what the ATO is looking for.
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