Paying a business tax bill you can't cover from cash

A tax bill is rarely a surprise in amount. It’s a surprise in timing. A strong year produces a large assessment months later, often after the cash has gone into stock, staff or a new vehicle. Or several quarters of GST and PAYG that seemed manageable land together. Either way, the bill is real, the due date is fixed, and the question is how to pay it without damaging the business.

There are really only three routes: pay from cash, agree a plan with the ATO, or borrow. Most owners end up using some combination. This page helps you choose the mix.

Which tax bill are you facing?

The type of tax shapes which options fit and how urgent it is.

• Income tax assessment. The annual bill for a company, trust distribution or sole trader, often the largest single amount. If your income has grown, PAYG instalments for the coming year will usually rise too.
• BAS and IAS amounts. GST, PAYG withholding and PAYG instalments due monthly or quarterly. We cover these in detail on our page about funding BAS and GST.
• Amended assessments or audit outcomes. Can include shortfall penalties and shortfall interest charge on top.
• State taxes. Payroll tax and land tax are owed to state revenue offices, not the ATO, and have their own payment arrangements.

PAYG withholding and super carry the extra risk of director penalty notices, so if those make up much of the debt, treat it as more urgent than a plain income tax assessment.

Three changes that alter the maths

ATO interest stopped being deductible. Any GIC or shortfall interest the ATO charges on or after 1 July 2025 is now off the deductions list, and GIC keeps compounding every day it sits unpaid. In the past, many owners treated a payment plan as cheap, flexible finance. Now the after-tax cost of a plan has gone up, whereas a commercial lender’s interest, on money borrowed for the business, is generally still a deductible expense.

Credit cards are ending at the ATO. From December 2026 a credit card is no longer an accepted way to pay the ATO; 30 November is the last day. Owners who used a card to buy time or earn points on tax payments lose that option, and anyone with a payment plan direct debit linked to a credit card needs to change it before the next instalment due after that date.

Business tax debts can appear on credit files. Credit bureaus can be told about a business tax debt once three things line up: the business holds an ABN, at least $100k has been overdue beyond 90 days, and the owner hasn’t engaged with the ATO (a payment plan counts as engaging). A listing can make every future application harder, including with your bank.

Payment plan, loan or both?

	ATO payment plan	Business loan or line of credit
How to set up	Self-serve online below $200k; phone the ATO for anything bigger	Application to a bank, non-bank or private lender
Speed	Often same day online	Hours to weeks, depending on lender and security
Cost	GIC compounds daily, not deductible	Interest and fees vary by lender; interest generally deductible for business purposes
Flexibility	ATO sets limits; income tax and BAS debts need their own plans	Term and structure negotiated with the lender
If you slip	Defaults can cancel the plan and lead to firmer ATO action	Lender’s default process, possibly over security
Effect on the ATO relationship	Shows engagement	Debt cleared entirely; ATO account back to zero

A payment plan often works well for a modest debt you can clear in a year or so from steady cash flow. A loan tends to suit when:

• The ATO wants a larger upfront payment than you can manage, or won’t agree to the term you need
• You’ve defaulted on plans before and the ATO is less flexible
• Tax is one strand of a wider squeeze, say a supplier pressing for payment during a quiet season, and a single facility can deal with all of it
• Garnishee or director penalty notices are already in play and speed matters

Our business loan vs ATO payment plan comparison goes deeper into the trade-offs. To estimate what a plan would cost, try the ATO debt calculator.

Weighing up a loan for a tax bill? Tell us what you owe and when it’s due. There’s no credit enquiry recorded for asking.

What do lenders want to see?

Banks are a sensible place to start if your financials are current and the tax debt is modest; they are often the cheapest money. Some banks are wary of lending to clear tax debt, though, and if yours is, specialist lenders see these requests every day. Expect them to look at:

• Your ATO account statement, broken down by account so the lender sees every dollar owed
• Lodgement status, because outstanding BAS or returns are a red flag
• Bank statements, to see whether the business can carry repayments alongside future tax
• The cause, such as a strong year, growth, a lost customer or poor provisioning
• Property or other security, when the sum is big or the credit file has marks on it

A clear explanation helps. “We had our best year, reinvested the profit in equipment and underestimated the tax” is a story lenders understand.

Size it for the next bill too

The most common mistake is borrowing exactly what’s owed today. Within weeks the next BAS or a higher PAYG instalment arrives, and the gap reopens with a loan repayment added on top.

When sizing, include:

1. The current debt, including any GIC accrued to date
2. The next activity statement due within the loan’s first few months
3. Any increase in PAYG instalments following a higher assessment
4. A buffer, or a separate tax savings account you’ll fund from each week’s takings

The cash flow gap calculator helps you spot when the next squeeze will land.

Worked example: a company after its best year

An illustration only. A Brisbane electrical contracting company has its strongest year, then spends heavily on two new vans and a larger workshop. Its income tax assessment arrives at $118k, and the directors also know a BAS of around $26k is due in eight weeks.

The company had defaulted on a small ATO payment plan two years earlier, and this time the ATO wants a substantial upfront payment before agreeing to a plan.

The directors compare options with their accountant:

• ATO payment plan over 12 months: the ATO debt calculator estimates GIC of roughly $7k, none of it deductible, plus the upfront payment they can’t comfortably make.
• 12-month unsecured business loan for $145k: covering the assessment and the coming BAS. The lender’s written quote shows total interest and fees of $11.5k. The accountant confirms the interest is generally deductible for a business purpose, which narrows the after-tax gap.

They take the loan, clear the ATO account to zero and pay the BAS on time. They also open a separate account and transfer a fixed amount from each week’s receipts for next year’s tax, so the same situation doesn’t recur.

From tax bill to a plan you can live with

A tax bill you can’t pay today isn’t a sign the business is failing. Often it means a good year arrived before the cash did. What matters is acting before the ATO’s options narrow, and choosing finance that clears the debt without creating a new one.

We deal with ATO debt enquiries constantly and don’t flinch at them. The form is a sixty-second job, and putting your hand up for help won’t trigger a credit check. Nobody here forwards your file to a string of lenders; one specialist goes over your ATO statement and trading position, then calls you directly. Please give us the exact amount owed and your real turnover, since precise figures are what let us propose a fitting structure on the first call.

Talk to us about your tax bill →