Tax debt loans: paying the ATO with a business loan

Plenty of owners quietly search for finance because of a tax bill, though few say so out loud. It rarely means the business is failing. More often a big customer paid late, a growth year pushed up the instalments, or a quarter’s GST got spent on wages and never caught up. Then the letters start.

A tax debt loan swaps what you owe the ATO for a commercial loan with a fixed term and a fixed end date. Sometimes that’s the right call, sometimes a payment plan is better, and sometimes both together work best. This page lays out how to decide.

What a tax debt loan actually is

Think of it as a job description rather than a product. Several kinds of lending can do the job, and which one fits depends on how much is owed and what security sits behind you:

Option	Best fit	Trade-offs
Caveat loan	Urgent debts, a property owner, a short repayment horizon	Fast; costs more per month; needs a clear exit
Second mortgage	Larger debts with time to repay over a year or more	Behind your existing home loan or commercial mortgage
First mortgage refinance	Rolling the tax debt into an existing property loan	Cheapest in total when approved; slower
Unsecured business loan	Smaller debts and businesses with strong bank statements	No property needed; sized on turnover; shorter terms

Funds are usually paid straight to the ATO at settlement, which also shows the lender that the purpose has been met.

Why the maths changed in July 2025

For years, owners could at least deduct the ATO’s general interest charge (GIC) on overdue tax. That ended. Under a law change the ATO has confirmed, any GIC or shortfall interest charge that accrues from 1 July 2025 onwards is non-deductible, whatever year the original tax relates to.

GIC compounds daily, so a tax debt left sitting can grow quickly, and now every dollar of that interest comes out of after-tax profit. Interest on a commercial loan taken out to pay business debts is a different question, and is generally deductible where the borrowing is for business purposes. Have your accountant confirm the treatment for your business before you count on the deduction.

The upshot: comparing a loan with a payment plan now means comparing after-tax costs, not headline costs. Our ATO debt calculator helps you see what the debt is costing as it runs.

Payment plan first, or a loan?

The ATO generally prefers businesses that engage early, and a payment plan is often the cheapest route when it’s affordable. The ATO lets many businesses owing less than $200,000 arrange a plan themselves through online services; above that, you’ll be speaking with the ATO directly. Activity statement debts and income tax debts are handled under separate plans.

A loan usually makes more sense when:

• The payment plan isn’t affordable. The instalments the ATO will accept would starve the business of cash.
• You’ve already defaulted on a plan. A second plan can be harder to get. See funding an ATO payment plan default.
• Enforcement has started. A director penalty notice or a garnishee notice changes the urgency entirely.
• Credit reporting is looming. When a business has a six-figure tax balance ($100,000 plus) more than 90 days past due and isn’t effectively engaging, the ATO can pass that information to credit bureaus. Clearing or formally arranging the debt before that happens protects your ability to borrow and trade on credit later.
• Property equity offers a cheaper total cost. Sometimes a secured loan over several years costs less after tax than the plan.

Our side-by-side business loan vs ATO payment plan comparison goes deeper. Many owners end up using both: a loan to clear the most dangerous parts (withheld PAYG and super, which can carry personal director liability) and a plan for the rest.

Tax debt in front of you right now? Tell us where things stand. Sixty seconds, and no credit enquiry is lodged.

What lenders look for

Lenders who fund tax debt are used to the situation and don’t treat it as a black mark by itself. Expect questions like these:

Area	What the lender is testing
Lodgements	Whether every BAS and return has gone in. Missing lodgements hide the true debt, so most lenders want them done before funding
The full ATO position	A current statement of account showing every amount owed, including any held in other accounts
Why it happened	A one-off event is easier to fund than a structural loss
Cash flow from here	Can the business pay its current tax as it falls due as well as the new loan?
Security	Property equity for larger amounts; strong bank statement conduct for unsecured loans
Enforcement status	DPNs, garnishees or statutory demands affect timing and which lenders will act

The biggest obstacle we see isn’t the debt; it’s unlodged returns. If your accountant is behind, our page on when tax returns aren’t up to date explains how to handle it.

A worked example

A made-up scenario to show the mechanics.

A civil works company owes $186k to the ATO: $94k in GST, $61k in PAYG withholding and $31k in GIC and penalties. A payment plan was agreed last year but defaulted after a client paid three months late. The director has just received a director penalty notice for the withholding.

The director owns a home worth $1.3m with $520k left on the mortgage. A private lender approves a second mortgage of $190k over two years, with the funds sent to the ATO on the day of settlement. The director penalty is resolved because the underlying debt is cleared, GIC stops accruing, and the company’s tax account returns to nil. The company then pays its quarterly BAS on time from trading and plans to refinance the second mortgage into its main home loan once two clean years of financials are in.

Total loan costs were higher in dollar terms than a successful payment plan would have been. But a payment plan wasn’t on the table any more, and the director’s personal exposure was.

Mistakes to avoid

• Waiting for the next letter. Each stage of ATO enforcement closes options. Early action is cheaper.
• Borrowing without fixing the cause. If the business can’t pay its current tax as it falls due, a loan just pushes the problem into next year with a lender attached.
• Ignoring the cost after tax. With GIC now non-deductible, leaving a debt unpaid costs more than it used to.
• Shotgun applications. Each full application adds a credit enquiry, and a cluster of them looks desperate. Get matched to a suitable lender before anyone runs your file.
• Going it alone when it’s overwhelming. The Small Business Debt Helpline is free and staffed by qualified financial counsellors who can help you understand your position alongside your accountant.

We don’t flinch at tax debt

Tax arrears land on our desk every week, and we’re comfortable with them. What matters to us isn’t that you owe the ATO; it’s how much, what’s at stake and how the business looks from here.

Getting started takes roughly a minute, and asking won’t register on your credit file. Your details are read by one team, not fired off to a dozen lenders who all want a piece. A real person studies the ATO position you describe and rings you back to talk options. Tell us the full amount owed, any notices you’ve received and what property or trading you have; the more accurate the picture, the sooner we can find something workable.

Talk to someone about the ATO debt →