What Is a 50/50 Arrangement with the ATO and How Does It Work in Practice?

You’ve received a significant tax assessment. You’re certain there are problems with it and you’re planning to dispute it. But the debt is live, recovery action is a possibility, and general interest charge (GIC) is accruing daily.

So here’s the question most CFOs and directors ask at this point: do I have to pay the tax while I’m fighting the assessment?

The short answer is yes, at least some of it. And increasingly, if you’re running a substantial business or a privately owned group, the ATO expects you to pay half of the disputed portion while the dispute runs its course.

That’s what a 50/50 arrangement with the ATO is. It’s not a formal deferral application or an instalment plan. It’s a negotiated position between you and the ATO where you pay the undisputed amount in full, plus at least 50% of the disputed primary tax, and in return the ATO agrees to defer recovery of the balance and remits part of the interest that would otherwise keep mounting.

It sits within the ATO’s dispute management framework. It’s not automatic. And for large businesses and wealthy groups, the expectation is now sharper: if you’re not paying in full, you’re expected to enter a 50/50 arrangement unless there’s a compelling reason not to.

This article steps through how 50/50 arrangements actually work, when the ATO expects you to use them, what you pay and what you get in return, and how to weigh the cashflow and governance implications when you’re in the middle of a serious tax dispute.

What the ATO Means by a “50/50 Arrangement”

A 50/50 arrangement is an agreement between you and the ATO to manage payment of a tax debt while you’re actively disputing the assessment that created it.

Here’s the basic mechanics.

You have an assessment. You disagree with it. You lodge an objection or commence proceedings in the Administrative Appeals Tribunal or Federal Court. The tax liability remains legally due and payable unless the assessment is varied or set aside, but the ATO recognises that recovery action during a genuine dispute can create unnecessary pressure and potentially undermine the process.

So the ATO will, in appropriate circumstances, agree to a 50/50 arrangement.

Under that arrangement you pay:

• 100% of any undisputed primary tax (the part of the assessment you accept as correct), and
• At least 50% of the disputed primary tax (the part you’re actively challenging).

In return, the ATO:

• Defers recovery action on the remaining 50% of the disputed amount while the dispute is unresolved,
• Remits a portion of the general interest charge (GIC) that would otherwise apply to the disputed amount you pay, and
• Leaves the door open for settlement discussions.

The arrangement doesn’t resolve the substantive dispute. It doesn’t bind the ATO to settle at 50%. And it doesn’t change the fact that if you lose, you’ll owe the unpaid balance plus GIC on that balance from the original due date.

What it does do is provide breathing room while the substantive issues are determined, reduce your total interest exposure, and demonstrate to the ATO that you’re engaging constructively.

When the ATO Expects You to Pay 50% of a Disputed Debt

Not every taxpayer faces the same expectation when it comes to 50/50 arrangements. The ATO’s approach is risk-based, and larger, more sophisticated taxpayers face sharper scrutiny.

If you’re a large business or part of a wealthy group, the ATO’s updated guidance in PS LA 2011/4 makes the position clear: you’re expected to either pay the full amount of the disputed assessment or enter into a 50/50 arrangement. The ATO views larger taxpayers as having access to funding, financial advice, and the capacity to meet tax liabilities even while disputing them.

There’s a policy rationale here. The ATO is managing risk to the revenue base. Large disputed debts that remain entirely unpaid create exposure if the taxpayer’s financial position deteriorates, if assets are moved offshore, or if structures are reorganised before the dispute concludes. Requiring 50% payment materially reduces that risk.

For smaller and mid-market businesses, the expectation is less rigid but still present. The ATO will consider your circumstances, your compliance history, and the size of the debt when deciding whether to insist on 50% or accept alternative arrangements like instalments or security.

But here’s the practical reality: if you’re disputing a material assessment and you simply refuse to pay anything pending resolution, you increase the likelihood the ATO will commence recovery action, demand security, or issue director penalty notices if you’re a company. The ATO interprets non-payment as potential risk to revenue, and their collection powers are broad.

Can you push back on a 50/50 arrangement? Yes, if you have good reasons. Cashflow stress, insolvency risk, or exceptionally strong merits might support an alternative approach. But those reasons need to be genuine and documented. You’ll need to explain them clearly and propose a workable alternative.

If the ATO is proposing 50/50, the question is not whether they’re entitled to ask. They are. The question is whether it’s feasible and appropriate in the context of your dispute and your financial position.

What You Pay and What You Get in Return

Let’s break down the actual numbers and benefits.

What you pay

First, you identify the undisputed portion of the assessment. That’s the part where you agree the ATO got it right. You pay that in full. There’s no deferral available for undisputed amounts.

Second, you identify the disputed portion. That’s what’s genuinely in issue in your objection or litigation. You pay 50% of the primary tax on that disputed portion.

Note: you’re paying 50% of the primary tax, not 50% of the total debt. The total debt includes GIC, which has been running from the original due date. GIC itself is not part of the 50/50 calculation. You’re not required to pay 50% of the GIC upfront under the arrangement.

What you get

In return for paying 50% of the disputed primary tax, the ATO agrees to:

• Defer active recovery of the remaining 50% while the dispute is on foot,
• Remit a portion of the GIC on the amount you paid under the arrangement, and
• Potentially treat your payment as demonstrating good faith in settlement discussions.

The GIC remission is significant. GIC is currently running at around 11% per annum (rates vary quarterly). It compounds daily. On a large disputed debt, that cost mounts fast.

Under a 50/50 arrangement, the ATO remits the GIC that accrues on the 50% you paid from the date you enter the arrangement until the dispute is resolved. You still owe GIC on the unpaid 50%, but you’ve halved your exposure to the compounding cost on the portion you paid early.

There’s also a potential tax deduction for the GIC you do pay. GIC is generally deductible when it’s paid, though the timing and character of the deduction depend on your circumstances and the nature of the underlying liability.

The cashflow equation

Here’s the commercial reality: paying 50% upfront creates immediate cashflow pressure, particularly if the disputed debt is large. You’re funding a liability you believe is wrong. That’s capital tied up that could be deployed elsewhere in the business.

But the alternative is usually worse. If you don’t pay, GIC accrues on the full disputed amount at the full rate. Recovery action becomes more likely. And if you ultimately lose the dispute, you’ll be facing the original debt plus years of compounded GIC on 100% of it.

A 50/50 arrangement effectively locks in a saving on half the GIC cost while you test your dispute. If you win, you get the 50% back with interest. If you lose, you’ve at least contained the interest bleed on part of the debt.

How a 50/50 Arrangement Fits Into Your Dispute Strategy

A 50/50 arrangement is not a standalone tactic. It’s part of your overall dispute strategy, and it interacts with objection procedures, tribunal hearings, Federal Court litigation, and settlement discussions.

Timing: objection, AAT, or Federal Court

You can enter a 50/50 arrangement at any stage of a dispute. Most commonly, the discussion happens during the objection phase, after you’ve lodged your objection but before it’s been determined.

At that point, the ATO case team or dispute resolution area will often raise payment expectations. If you’re a large business, they’ll flag that a 50/50 arrangement is expected. If you’re smaller, they’ll at least ask about your intentions.

If the objection is unsuccessful and you escalate to the Administrative Appeals Tribunal or Federal Court, the 50/50 arrangement typically continues. The ATO won’t generally demand more simply because you’ve escalated, provided you’re maintaining your side of the arrangement and complying with ongoing obligations like lodging returns and paying new liabilities as they arise.

Settlement negotiations

One reason the ATO favours 50/50 arrangements is that they create a more realistic settlement environment. When a taxpayer has paid nothing, there’s less pressure on both sides to find middle ground. When 50% has been paid, both the taxpayer and the ATO have something at stake, and settlement discussions tend to be more productive.

From your perspective, having paid 50% doesn’t bind you to settle at that figure. The merits of the case are what matter. But it does signal that you’re taking the process seriously and that you’re not simply using the dispute as a delay tactic.

Cashflow planning and board governance

For directors and CFOs, a 50/50 arrangement has governance implications. You’re committing material funds to discharge a liability the business is disputing. That needs board approval, and it needs to be reflected in your financial statements and cashflow forecasts.

You’ll need to scenario-plan:

• What happens if the dispute takes two years? Can the business fund the 50% and still operate normally?
• What happens if you lose and the remaining 50% plus GIC becomes due? Do you have funding or refinancing capacity?
• What happens if you win? When will the refund arrive, and how does that affect your working capital cycle?

These aren’t legal questions. They’re business and risk management questions. But they shape whether a 50/50 arrangement is the right choice for your circumstances.

What if your case is very strong?

If your advisers assess that your prospects of success are exceptionally strong, you might push back on paying 50%. The argument would be: why tie up capital on a liability that’s likely to be set aside?

That’s a legitimate question. But it’s one you need to weigh against the ATO’s likely response. If you refuse to pay and they commence recovery, you may find yourself fighting on two fronts: the substantive dispute and an urgent application to stay enforcement. That’s costly, distracting, and not always successful.

In practice, even where the merits strongly favour the taxpayer, many businesses proceed with a 50/50 arrangement because it removes the enforcement risk and lets you focus entirely on winning the substantive case.

When the ATO May Refuse a 50/50 Arrangement

A 50/50 arrangement is not automatic. The ATO assesses each request against a set of risk factors, and in some circumstances they’ll decline and push for full payment or security instead.

The ATO’s internal guidance in PS LA 2011/4 sets out the factors they consider. If one or more of these apply, expect resistance:

Risk to revenue

The ATO’s overriding concern is whether deferring 50% creates a risk that the debt won’t be recovered if the taxpayer loses. Factors that signal risk include:

• Poor compliance history: repeated late lodgements, unpaid liabilities, or previous disputes where the taxpayer didn’t meet obligations.
• Asset dissipation or restructuring: evidence that assets are being moved offshore, transferred to related parties, or stripped out of the disputing entity.
• Insolvency indicators: winding-up applications, statutory demands, director resignations, or financial statements showing negative equity.
• Phoenixing behaviour: a history of liquidating entities to avoid liabilities and re-emerging under new structures.

If the ATO forms the view that deferring recovery creates material risk, they’ll likely refuse 50/50 and demand either full payment or registered security (such as a bank guarantee or charge over property).

Size and age of the debt

Very large debts or debts that have been outstanding for an extended period attract closer scrutiny. The ATO is less willing to defer a $10 million debt for three years than a $200,000 debt for six months. The longer the likely dispute timeline and the larger the exposure, the more the ATO leans toward requiring security rather than just 50% payment.

Merits of the dispute

The ATO also considers its view of the merits. If they assess your objection as weak or lacking in substance, they’re more likely to push for full payment and less willing to agree to deferral.

This creates tension, because you’ll obviously disagree about the merits. But from the ATO’s perspective, if they believe the assessment is correct and you’re disputing it on marginal grounds, they see deferral as an unwarranted concession.

Refusal to provide information or cooperate

If you’re refusing to provide information the ATO requests, or if you’re not maintaining compliance with ongoing obligations (lodging returns, paying new liabilities as they fall due), the ATO will treat that as bad faith and refuse a 50/50 arrangement.

Cooperation is an implicit condition. The ATO expects you to stay current on everything else while the dispute is running.

What happens if they say no

If the ATO refuses a 50/50 arrangement, your options are:

• Pay in full and pursue the dispute (which removes all enforcement risk but maximises your capital outlay),
• Offer security (such as a bank guarantee) to cover the disputed amount,
• Negotiate a higher percentage payment or staged arrangement, or
• Accept that recovery action may commence and deal with it as it arises (including potential court applications to stay enforcement).

None of these are ideal, but the least ideal is doing nothing and assuming the ATO will wait indefinitely.

Practical Steps to Discuss and Document a 50/50 Arrangement

So you’ve decided a 50/50 arrangement makes sense for your dispute. How do you actually get it in place?

Who to speak to

The first step is identifying the right contact within the ATO. This will usually be:

• The case officer managing your objection,
• A team leader in the dispute resolution area,
• The ATO officer handling debt collection if recovery action has already been flagged, or
• The client engagement manager if you’re a large or multinational business with a dedicated ATO relationship.

Don’t wait for the ATO to raise it. If you’re planning to dispute an assessment and you can see that 50/50 is the likely expectation, raise it proactively. It signals you’re taking the process seriously.

What information to provide

The ATO will want to understand:

• What portion of the assessment is undisputed and what’s in dispute,
• Your grounds for disputing the assessment (even in summary form),
• Your financial position and capacity to pay the 50%,
• Your compliance status: are all returns lodged, are all other liabilities paid, are you meeting PAYG and GST obligations on time, and
• Any factors that might affect your ability to pay if the dispute is unsuccessful (cashflow forecasts, funding arrangements, related-party exposures).

You don’t need to provide a full financial autopsy, but you do need to give the ATO enough comfort that deferring 50% doesn’t create material revenue risk.

If you’re a large business, expect the bar to be higher. The ATO will want board-level sign-off, evidence of funding capacity, and a clear timeline for when the disputed issues will be determined.

Timing

Raise the 50/50 discussion early, ideally before the original due date passes or shortly after lodging your objection. If significant GIC has already accrued and you’re coming to the table late, the ATO may be less flexible.

Once you’ve reached in-principle agreement, document it. The ATO should confirm the arrangement in writing, setting out:

• The amount you’ll pay (undisputed plus 50% of disputed),
• The GIC remission that will apply,
• The conditions (e.g. ongoing compliance, paying new liabilities on time),
• The process if circumstances change (either you can’t pay or the ATO reassesses risk), and
• What happens when the dispute is resolved.

Common conditions the ATO will impose

A 50/50 arrangement almost always comes with strings:

• You must stay compliant with all lodgement and payment obligations while the dispute is on foot. Miss a BAS or a PAYG instalment, and the ATO may terminate the arrangement.
• You must notify the ATO of any material change in circumstances (insolvency, asset sales, restructures).
• You may be required to provide periodic updates on the dispute’s progress, particularly if it’s taking longer than expected.

If you breach any of these conditions, the ATO can walk away from the arrangement and commence recovery of the full outstanding balance.

If your circumstances change

If something changes after you enter the arrangement, your cashflow deteriorates, the dispute takes longer than expected, or new issues arise, don’t ignore it. Go back to the ATO and renegotiate.

They have discretion to vary the arrangement if you’re transparent and proactive. What they won’t tolerate is being blindsided by non-compliance or a sudden inability to pay.

What Happens When the Dispute Is Resolved

Eventually, every dispute ends. Either you win, you lose, or you settle somewhere in between. Here’s what happens to the money you paid under the 50/50 arrangement.

If you win

If your objection is upheld or the court finds in your favour and the assessment is reduced or set aside, the ATO will refund the amount you overpaid.

That includes:

• The full 50% of the disputed primary tax, if the disputed issues are resolved entirely in your favour, and
• Interest on the overpayment, calculated from the date you paid it until the date it’s refunded.

The interest is calculated at a statutory rate (currently the same rate as GIC but applied in your favour). This is sometimes called a section 8AAZL payment (a reference to the provision in the Taxation Administration Act that requires the ATO to pay interest on overpaid amounts).

So if you paid $500,000 under a 50/50 arrangement and the dispute took two years to resolve in your favour, you’ll get the $500,000 back plus interest for that two-year period. That interest is assessable income, so it will be taxed in the year you receive it, but it does provide some compensation for the opportunity cost of the funds.

If you lose

If the ATO wins and the assessment is upheld, the remaining 50% of the disputed primary tax becomes immediately payable. So does the GIC that has been accruing on that unpaid 50% from the original due date.

The GIC remission you received on the 50% you paid under the arrangement remains in place. You’ve saved that cost. But the unpaid half has been accumulating GIC the whole time, and you now have to discharge it.

If the dispute took two years, and the unpaid 50% was $500,000, you’ll owe that $500,000 plus roughly two years of GIC at around 11% per annum compounded daily. That’s an additional cost in the range of $120,000 to $130,000 depending on exact rates and timing.

This is why running the numbers before you enter a 50/50 arrangement is critical. You need to model both outcomes and ensure you have funding capacity if you lose.

If you settle

Many disputes settle before they reach a final determination. The ATO publishes data showing that settlements in large business disputes often result in variances from the original assessment, sometimes materially so.

If you settle, the 50% you paid will be credited against the agreed settlement amount. If the settlement is less than the original assessment, you’ll receive a refund of the difference. If it’s more (which is rare but possible if new issues emerge during the dispute), you’ll pay the shortfall.

The terms of settlement will usually include agreement on GIC treatment, and that’s a negotiation point. You can sometimes negotiate for the ATO to remit additional GIC as part of settlement, particularly if both sides are compromising on the primary tax.

Financial statement and tax treatment

From an accounting perspective, the amount you pay under a 50/50 arrangement is still a tax liability, not a contingent liability, because the assessment stands until it’s varied or set aside. You’ll generally record it as a tax payable with a corresponding receivable if you’re confident of success, or a provision depending on your assessment of the likely outcome.

The GIC you pay is deductible when incurred, subject to the usual rules. The interest you receive if you win is assessable income. Your accountants and tax advisers will need to track these movements carefully across reporting periods, especially if the dispute spans multiple financial years.

When a 50/50 Arrangement May Not Be Appropriate

A 50/50 arrangement is a useful tool in many disputes, but it’s not universally appropriate. There are circumstances where paying 50% creates more problems than it solves.

Insolvency or severe cashflow stress

If your business is already under financial strain and paying 50% of the disputed debt would push you into insolvency or breach banking covenants, a 50/50 arrangement may not be viable.

In that scenario, you need to have a frank conversation with your advisers and the ATO about alternatives: a longer payment timeline, lower percentage, or security arrangement that doesn’t require immediate cash outlay.

Paying 50% and then collapsing doesn’t serve anyone. The ATO would rather negotiate a workable structure than force payment that triggers insolvency.

Exceptionally strong merits and short timeline

If your dispute has exceptionally strong merits, think clear factual or legal error by the ATO, supported by binding precedent, and the objection is likely to be resolved quickly, you might take the view that tying up 50% of the disputed amount for a few months isn’t worth it.

This is a judgement call. You’re weighing the GIC saving and enforcement-risk mitigation against the opportunity cost of the capital and the strength of your case.

If you decide not to proceed with 50/50 on this basis, document your reasoning clearly and communicate it to the ATO. Frame it as: “We’re confident this will be resolved quickly in our favour, and we’re proposing [alternative arrangement] in the interim.” Don’t just refuse to engage.

Disputes involving fraud or penalties

If the disputed assessment includes allegations of fraud, tax avoidance, or promoter penalties, the dynamics shift. These cases attract reputational and director liability risks that go beyond the tax debt itself.

In fraud or penalty cases, paying 50% can sometimes be read (incorrectly) as an admission or acceptance of part of the conduct. While the ATO and courts know that payment under a 50/50 arrangement is not an admission on the merits, the optics can be problematic, particularly if the matter becomes public or involves regulatory referrals.

In these circumstances, you may take a harder line and require the ATO to prove its case before any payment is made, or you may offer security instead of payment.

Where other payment or security arrangements are already in place

If you’ve already provided security to the ATO (a bank guarantee, charge over assets, or deed of indemnity from a related entity), a 50/50 payment arrangement may be duplicative.

The ATO may still prefer cash over security, but if you’ve already secured the debt, you have a negotiating position to resist also paying 50% in cash. The question becomes: what additional risk are they managing that the security doesn’t already cover?

Strategic disputes where preserving capital matters

In some disputes, particularly where you’re planning to escalate to the Federal Court and potentially to the Full Federal Court or High Court, preserving capital for legal costs and expert evidence becomes a strategic priority.

If the dispute is a test case, or if it involves novel legal issues that will require significant investment in senior counsel and expert witnesses, you may prefer to minimise upfront payments and keep your capital available for the litigation itself.

This is a high-stakes strategy, and it requires a very clear view of the merits and the likely timeline. But in the right circumstances, it can be the better choice.

The Bottom Line: Balancing Risk, Cashflow and Dispute Strategy

A 50/50 arrangement with the ATO is not a concession. It’s a risk-management tool.

It reduces your exposure to compounding interest, removes the immediate threat of enforcement, and signals to the ATO that you’re engaging in good faith while still maintaining your position on the merits.

For larger businesses and wealthy groups, it’s increasingly expected. For smaller businesses, it’s encouraged but not automatic. Either way, the commercial and governance implications are the same: you’re committing capital to discharge a liability you believe is wrong, and you need to be clear-eyed about the cost, the benefit, and the scenarios if you win or lose.

The right decision depends on your financial position, the strength of your case, the likely duration of the dispute, and the ATO’s assessment of risk. It’s not a one-size-fits-all answer. It’s a judgement call that should be made with input from your legal, tax, and financial advisers, and with board-level oversight if the amounts are material.

What you can’t afford to do is ignore the question. If you’re disputing an ATO assessment and you haven’t thought through your payment strategy, you’re creating unnecessary risk. The ATO has broad collection powers, and they will use them if they believe there’s a risk to revenue.

Get ahead of the conversation. Understand what a 50/50 arrangement involves, assess whether it’s right for your circumstances, and if it’s not, have a clear alternative ready to discuss. The worst position is reactive silence.

Disclaimer This article provides general information only and does not constitute legal or taxation advice. The content is current as at the date of publication. Tax disputes and ATO collection matters involve complex legal and factual issues, and the appropriateness of any payment or dispute strategy will depend on your specific circumstances. You should obtain professional advice before making decisions about disputing an assessment, entering into payment arrangements, or responding to ATO collection activity. Aptum Legal advises on tax disputes and commercial litigation but does not provide taxation compliance or accounting services.