Business loans when you owe the ATO

Tax arrears push more owners towards business finance than almost anything else, yet hardly anyone mentions it at a barbecue. It usually builds quietly: a strong year leaves a bigger income tax bill than expected, a GST quarter gets paid late to cover wages, and twelve months later the running balance has a life of its own.

Lenders know this. Plenty of sound businesses carry tax debt, and a debt by itself doesn’t end the conversation. What lenders want to see is the whole balance, how long it’s been owing, and whether it’s being managed or ignored.

Should you borrow at all, or just set up a payment plan?

This is the first decision, and it’s a genuine one. An ATO payment plan is often the cheapest and simplest way through, and for many businesses it’s the right answer. The ATO lets eligible businesses set plans up online, and it treats income tax and activity statement debts as separate accounts, which can mean two plans rather than one.

Borrowing earns its place if any of the following describe you:

• The ATO is escalating. You’ve had a director penalty notice, a garnishee notice or a warning that the debt may be reported.
• A plan has already defaulted and the ATO won’t agree to a new one on terms you can meet.
• The plan instalments would choke the business while the lender’s term spreads the cost more evenly.
• You need fresh working capital as well, and clearing the ATO in the same loan stops it competing with everything else.

The 2025 change that shifted the maths: the ATO’s interest charges (GIC and SIC) that accrue on or after 1 July 2025 can no longer be deducted, and that applies even when the underlying debt dates from an older year. Before then, a business could claim the GIC and the after-tax cost was lower. Now it can’t. Interest on a business loan is a different question, and whether it’s deductible in your structure is one to put to your accountant. We weigh the two side by side in business loan vs ATO payment plan, and the ATO debt calculator puts dollar figures on it.

What do lenders actually check about the debt?

What the assessor reviews	The reason it counts	Evidence that strengthens your file
Total balance across all ATO accounts	Lenders want the full picture, not one account	Portal statements for activity statement and income tax accounts
Age of the debt	Older, growing debt suggests a structural cash problem	A short note on how it built up and what’s changed
Payment plan status	A kept plan shows engagement and discipline	The plan letter and bank statements showing instalments paid
Lodgements	Unlodged returns hide the true debt	All BAS and returns lodged, even if unpaid
ATO actions	DPNs, garnishees or reporting change the urgency	Copies of any notices received
Credit reporting	A reported tax debt shows on the business’s credit file	Re-engaging with the ATO, then evidence of the plan

That lodgement row trips up more applications than the debt itself. An assessor can price a debt that’s been measured. A debt still waiting on unlodged statements can’t be priced at all. If you’re behind, see business loans when BAS lodgements are late.

The $100k credit reporting line

Under the disclosure rules, three things line up before the ATO may pass a business’s tax debt to the credit bureaus: an ABN, an overdue balance of $100k or more that’s been outstanding beyond 90 days, and no real engagement from the business. Engagement has a wide meaning here. Honouring a payment plan qualifies, and so does having an objection or review on foot.

That makes the run-up to the line important. Once a reported debt sits on the business’s credit file, some lenders that would have helped will step back, and the reporting can affect suppliers offering trade credit. If the ATO has written to warn you, that’s a point where acting quickly, whether through a plan or a loan, protects more than just the balance.

Which options fit which debt?

Banks deserve the first call. If your debt is moderate, on a plan you’ve honoured, and your financials are strong, your bank may well lend, and bank money is usually the cheapest you’ll find. If it says no, the options below are where most owners end up.

Your situation	Likely fit
Debt under about $100k, solid bank statements, no property	Unsecured business loans sized on turnover
Debt of any size, property owned, time to arrange	Second mortgage or first mortgage refinance
ATO escalating, deadline in days, property owned	Caveat loans for speed, refinanced later
Debt plus other pressures (supplier, payroll)	A larger secured loan clearing several debts, see tax debt loans

If you’re unsure which line describes you, give us a quick outline and we’ll say plainly where you sit.

Example: clearing $185k before it was reported

An illustrative case. A Queensland transport company has $185k outstanding, split between GST and PAYG on one side and company tax on the other. Its payment plan fell over after the biggest customer stretched its terms to 75 days, and an ATO letter now warns of disclosure to the credit bureaus. Both directors hold a jointly owned home with plenty of equity.

A non-bank lender approves a second mortgage of $210k. At settlement, $185k goes straight to the ATO and $25k goes to the business account as a buffer for the next quarter’s GST. The lender asks for an updated ATO statement two weeks later showing a nil balance. The company now has one repayment instead of an ATO balance compounding daily, and the reporting threat is gone. The directors plan to refinance to cheaper money once a year of clean history and two clean BAS cycles are behind them.

Steps that make the application easier

1. Get a statement for each ATO account, either through online services for business or via your registered agent.
2. Bring all lodgements up to date; an unpaid but lodged BAS is far easier to finance than a missing one.
3. Ring the ATO before applying if it’s already escalating; a lender settling in two weeks is a credible thing to tell them.
4. Decide on security. Owning property changes the amount and speed available.
5. Borrow enough for a buffer, not just the debt, so the next BAS doesn’t put you straight back.
6. Make one targeted application rather than several speculative ones.

Mistakes we see often

• Paying the ATO from a daily-debit loan without checking cash flow. Swapping one pressure for another just moves the problem.
• Ignoring ATO letters while arranging finance. Keep talking to them. Silence is what triggers the next step.
• Forgetting super and PAYG withholding. These carry director penalty risk, so they usually get paid first.
• Leaving out an account. Lenders find it on the statement, and then the numbers don’t match.

Owe the ATO? Here’s where we come in

Tax debt is a big share of the enquiries we see every week, and it doesn’t make us nervous. We know which lenders will settle straight to the ATO, which ones want a payment plan history first, and which will move fast when a notice is ticking.

Sixty seconds or so is all the form needs, and no credit enquiry is made because you asked. What you send us stays here; it isn’t broadcast across the market. One of our team goes through it personally and calls you to talk through the numbers. Include the full ATO balance across all accounts and any notices you’ve had, because the accurate figure is what lets us line up a lender that can actually clear it the first time.

Find out what’s possible with your ATO debt →