ATO Compromise Proposal

When ATO Debt Is Crushing You, There IS Another Option

When someone is drowning in ATO debt, they usually think they’ve only got two options:

• Pay it in full (usually impossible), or

• Go bankrupt (which no one wants).

What most business owners don’t realise is that the ATO can accept a compromise — a negotiated settlement — if you meet the right criteria.

This isn’t about dodging tax. It’s about presenting a structured, commercial proposal that shows the ATO they’re better off accepting a reduced lump sum now rather than chasing a debt they’ll never recover.

This approach is set out in ATO Practice Statement PS LA 2011/3 and Chapter 27 (v6) of the ATO Receivables Management Policy.

But — and it’s a big one — the ATO will only consider it if you can clearly satisfy a few key requirements.

The Four Things You MUST Show the ATO

1. Your Offer Must Beat the Likely Bankruptcy Return

If you went bankrupt, the ATO might recover only cents in the dollar — or nothing at all. Your compromise offer must clearly show they are financially better off accepting it.

2. You Must Be Fully Compliant With Lodgements

The ATO won’t negotiate if BAS or tax returns are outstanding. Compliance signals seriousness and credibility.

3. You Must Show the Business Is Viable

The ATO wants evidence that income is stable or improving, the business can continue trading, and the compromise will help long-term survival.

4. You Must Prove That Full Repayment Would Cause Long-Term Hardship

This is genuine financial strain — not a short-term cashflow dip. The ATO looks for financials, bank statements, expense breakdowns, and hardship evidence.

What the ATO Wants to See in a Strong Proposal

• Current financial statements

• Profit and loss

• Asset and liability position

• Forecast of viability

• Evidence of hardship

• Bankruptcy comparison (proving better return)

When a Compromise Works Best

A compromise is most effective when:

• The debt is large

• The business is viable

• Bankruptcy is a real risk

• The ATO would get little from bankruptcy

• The director wants a clean reset

Straight Advice

A compromise works when:

• Your offer beats bankruptcy

• Lodgements are up to date

• The business is viable

• Hardship is genuine