Using business finance to pay ATO debt: what to know in 2026

If your business owes the ATO, finance can sometimes clear the debt in one step, but whether it beats a payment plan depends on the size of the debt, your cash flow and what the loan costs in total. Since 1 July 2025 the ATO’s interest charges are no longer deductible, so carrying the debt costs more than it used to.

Tax debt is one of the most common reasons Australian businesses look for finance. BAS, PAYG withholding and income tax can build up quickly when cash flow is tight, and once the ATO starts charging interest and escalating recovery, the cost and stress rise.

What changed on 1 July 2025?

The ATO charges the general interest charge (GIC) on overdue amounts and the shortfall interest charge (SIC) on amended assessments. Until recently these charges could be claimed as a deduction. For income years starting on or after 1 July 2025, GIC and SIC are no longer deductible.

The practical effect is that an overdue balance now costs a business more once tax is counted, which shifts the maths when you weigh a payment plan against refinancing. A loan’s own interest and fees may still be deductible when the borrowing is used for business purposes, so ask your accountant how each side treats tax in your case.

What is new in 2026: credit reporting and tougher follow-up?

Two developments make it riskier to sit on a large debt and hope.

Credit bureau reporting. The ATO has said it may disclose overdue business debts to credit reporting bureaus where the debt is $100,000 or more, it is well overdue and the business is not engaging. It sends an intent-to-disclose notice first, and in its published remarks tens of thousands of notices have gone out, with thousands of debts then reported. A business that is talking to the ATO and working towards a solution is treated very differently from one that has gone quiet.

Closer scrutiny of small business debt. The Australian National Audit Office has reviewed how the ATO manages small business collectable debt, which makes up roughly two-thirds of the ATO’s total collectable debt. The ATO accepted the recommendations, so expect continued attention on overdue small business accounts.

Why this matters for finance: a default listing on a business credit file can make a bank or lender more cautious, and in some cases trade suppliers and credit insurers tighten terms as well. Dealing with the debt before it reaches that stage keeps more options open.

What are your main options?

1. An ATO payment plan

The ATO may agree to a plan that spreads the debt over time. GIC generally continues to accrue on the outstanding balance. A plan fits a business with predictable cash flow that is current on its returns. The ATO says businesses owing $200,000 or less may be able to set up a plan online; bigger debts typically need a call. Expect separate plans for income tax and for activity statements, and note that missing a later lodgement or payment can put the arrangement in default.

2. An unsecured tax loan

Some cashflow lenders list tax debt as an eligible loan purpose. Approval depends mainly on your trading performance. These loans can be fast, but limits are linked to turnover and pricing reflects the unsecured risk. See how unsecured business loans work.

3. A property-secured or private loan

For larger debts, or where financials are behind because of the tax issue, lenders that focus on property security can pay the ATO out in one go. Pricing and terms depend on the security, the amount and the exit strategy. If time is critical, caveat and bridging loans are sometimes used for a short period while a longer-term refinance is arranged.

Side by side

	Payment plan	Unsecured loan	Secured or private loan
Best for	Steady cash flow, lodgements current	Healthy trading, smaller debt	Larger debt, property available
Speed	Can be quick for smaller debts	Often fast	Depends on valuation and legals
Main trade-off	GIC keeps accruing, not deductible	Limits tied to turnover	Security at stake, more paperwork
Credit file	Engaging protects you	Lender will check trading	Lender will check security and exit

What do lenders look at?

• Size and age of the debt, and what it is made up of
• Lodgement status. Many lenders want all lodgements up to date
• Payment plan history, including whether instalments have been met
• Trading performance since the debt built up
• Security available and existing debts

Be upfront. Lenders will usually find an ATO debt during assessment, and an undisclosed debt can end an application that might otherwise have been approved. Our guide on how lenders assess business loans explains the wider picture.

How do you compare the cost fairly?

Compare like with like. Work out what the ATO debt will cost over your expected payback period at the current GIC rate, remembering it is no longer deductible, then compare that with the total cost of the loan, including fees. Our repayment calculator helps with the loan side, and your accountant can help with the tax side.

Cheaper monthly repayments are not always the better deal. A longer term can lower each instalment but raise the total paid, so look at both. For more on this, read rate vs approval.

A worked example

Picture a small Australian landscaping business that has fallen behind on a mix of BAS and PAYG withholding after a wet winter. The debt is sizeable, lodgements are current and trading has recovered. The owner has two choices: a payment plan with GIC still accruing and no deduction for it, or a refinance that clears the ATO in one go and replaces it with a single, fixed repayment. Neither is automatically right. The owner adds up the total cost over 12 to 24 months for each, asks the accountant how the tax treatment differs, and checks whether lenders would accept the business with the debt still on the books. The numbers, not the hunch, decide.

What questions are owners asking now?

“Will talking to the ATO hurt my chances of finance?” Usually the opposite. A lender is far more comfortable with a debt that sits inside a plan being met than with one that is unmanaged. Having the plan paperwork ready, plus recent BAS lodgements, makes the conversation shorter.

“Can I get a loan while a payment plan is running?” Often, yes. Some lenders treat an on-time plan as a sign of discipline, though they will still assess serviceability with the plan instalments included. Others prefer to refinance the whole balance so the plan ends.

“Does paying the ATO with a loan make my GIC problem disappear?” It stops the GIC clock on the amount paid, but you swap it for a loan with its own fees and repayments. That is why the total-cost comparison matters more than the headline instalment.

“What if the debt keeps growing?” If new BAS or PAYG amounts are building each quarter, a one-off payout only fixes the past. Lenders will ask whether the underlying cash flow can cover current obligations, so sort out the leak and the debt in the same breath. Setting aside GST and PAYG withholding in a separate account each time you are paid is a simple habit that many accountants recommend.

What documents speed things up?

Having these ready usually shortens the process: a recent ATO account statement showing what is owed and what it is made up of, the last few BAS lodgements, business bank statements, your latest financials, any payment plan agreement, and details of property or other assets that could be offered as security. Our documents checklist lists the wider set lenders ask for.

Next steps

Starting early matters. If you are already behind, contact the ATO before a notice arrives, then line up your finance options in parallel. Compare tax and ATO finance or look at refinance options. If you would rather talk it through, you can tell us about the debt and we will look for lenders that suit.

When you are ready, enquire with us. It takes about 60 seconds, and there is no credit check to get matched, so asking will not touch your credit file. We do not blast your details out to a pile of lenders; they go only to the lenders your business is referred to, and a real person looks at your situation and calls you. Please fill the form in accurately so we can match the right option first time.

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