what happens when you owe the ato money

When you owe the ATO money, the debt usually doesn’t just sit there — it can grow with interest, trigger reminders, and eventually lead to collection action if you ignore it. The ATO also says it can use any future tax refunds or credits to reduce what you owe.

What can happen

• The ATO may contact you by SMS, myGov message, letter, or phone after the due date.

• Interest is added through the general interest charge, and it compounds daily while the debt stays unpaid.

• Your refund or credits can be offset against the debt automatically.

• If you still do not respond, the debt may be referred to an external collection agency.

• In more serious cases, the ATO may take firmer or legal action to recover the money.

If you can’t pay

The ATO says it is best to contact them before the due date or as soon as you know you cannot pay. They may offer help with payment arrangements, and in some cases you can request remission of some or all of the interest if there were extenuating circumstances.

Special case: debt on hold

Some old debts have been placed “on hold,” meaning the ATO is not actively chasing payment, but it may still use later refunds or credits to reduce the balance. The ATO says taxpayers with these debts do not usually need to take action unless contacted.

Practical takeaway

If you owe the ATO, the safest move is to deal with it early rather than ignore it. That usually means checking the debt, contacting the ATO, and setting up a payment plan if needed, because the debt can otherwise become more expensive and harder to resolve.

Quick note

For company directors, unpaid business tax can become much more serious, and there may be personal liability in some situations.