ATO tax debt loans: when borrowing to clear the tax office makes sense

Yes, you can use a business loan to pay out a debt to the ATO, and plenty of sound businesses do. A tax debt loan swaps the tax office for a private lender: the ATO is paid in full, firmer collection action stops, and you repay the lender on terms you agreed to rather than terms imposed on you. Whether it’s the right move depends on the size of the debt, how the business is trading now and whether you have property that can sit behind the loan.

Why do business owners refinance ATO debt?

Tax debt rarely comes from one bad decision. More often it’s a run of quarters where GST and PAYG withholding quietly funded wages, stock or a slow-paying customer. By the time the letters start arriving, the balance has grown and interest is compounding on top of it.

Owners usually look at a loan for three reasons:

1. Cost. The ATO’s general interest charge compounds daily. Under legislation that took effect on 1 July 2025, GIC and shortfall interest charge incurred from that date are no longer tax deductible. That changed the comparison with private finance for a lot of businesses.
2. Pressure. The ATO’s list of firmer action includes garnishee notices to your bank or trade debtors, director penalty notices and disclosure of business tax debts to credit reporting bureaus. Any of those can damage a business faster than the debt itself.
3. Certainty. A loan has a fixed term and a known end date. Clearing the tax office also tends to make it easier to deal with suppliers, landlords and future lenders.

What happens if you leave it?

The ATO says it prefers to work with businesses before escalating, and a payment plan is often the first step. In its June 2025 small business guidance, the ATO points out that GIC keeps accruing during a payment plan, so a shorter plan means less interest. It also lists a business loan as one of the options a tax professional may raise.

Left unmanaged, the risks escalate. Directors can become personally liable for unpaid PAYG withholding, GST and super guarantee charge through a director penalty notice, with recovery possible 21 days after the notice is issued. A garnishee on your bank account can freeze your working capital overnight.

Payment plan or loan: which is better?

	ATO payment plan	Tax debt loan
Who you owe	The ATO	A private lender
Interest	GIC, compounding daily, not deductible from 1 July 2025	Lender’s interest and fees, priced on your circumstances
If you miss a payment	Plan can be cancelled and firmer action resumes	Lender’s default terms apply
Credit reporting	ATO may disclose overdue business tax debts in some cases	Normal loan reporting
Effect on new obligations	You must stay current on new lodgements	You must stay current on new lodgements
Best when	Debt is small and can be cleared quickly	Debt is larger, pressure is building, or a plan has failed

Neither option fixes the underlying problem on its own. If the business still can’t put aside GST and PAYG each quarter, a loan simply moves the debt. The ATO benchmarks guide is a useful check on whether margins are where they should be.

What do lenders look at when you owe the ATO?

ATO debt is considered case by case. A lender will typically want to understand:

• The full balance, broken into GST, PAYG, income tax and super guarantee.
• How it built up. A one-off event (a lost contract, a flood, an illness) reads very differently from three years of drift.
• Lodgement status. Unlodged BAS or returns are a bigger worry than the debt itself. Quarterly BAS is due on 28 October, 28 February, 28 April and 28 July, and lenders like to see every one lodged even if not paid.
• Notices received. A director penalty notice or garnishee changes the urgency and sometimes the structure.
• Current trading. Bank statements showing the business can service a loan and meet new tax as it falls due.
• Security. Property, residential or commercial, opens much larger amounts and longer terms.

If you’ve got your ATO statement handy, you can see whether a tax debt loan is an option in about a minute.

Secured or unsecured?

For smaller debts and businesses with solid banked turnover, unsecured lending (typically $5k to $500k, sized on turnover and bank statements) can clear the balance without touching property. For larger debts, or where a credit file has already been marked, a property-secured loan is usually more workable. Property-secured business loans run from $20k to $5m as first mortgages, second mortgages or caveat loans. A caveat can sit behind an existing home loan without refinancing it, which keeps the bank loan untouched. The secured or unsecured tool gives a quick steer.

What does it cost?

We don’t quote rates, because a tax debt loan is priced entirely on the business in front of the lender: the size of the debt, the security offered, trading history, credit file and how long the money is needed. The pieces you will be comparing are:

• the interest on the loan, and whether interest can be paid monthly, prepaid or added to the loan
• establishment and legal fees, particularly on property-secured loans
• valuation or security costs, if any
• any early repayment terms

Set the total cost against what the ATO debt would cost you in non-deductible GIC over the same period, plus the cost of a garnishee or a DPN landing. Your accountant can run the after-tax comparison.

Illustrative example

Illustrative example: A regional electrical contractor fell behind on BAS during a year when two builders paid late. The business now owes the ATO about $140k across GST and PAYG withholding and has received a notice of intent to disclose. Turnover has recovered and current lodgements are up to date. The owner has equity in the family home behind a bank loan. A second-mortgage business loan pays the ATO in full, the disclosure doesn’t go ahead, and the contractor sets up a separate account to hold GST and PAYG each week from then on. The loan has a clear end date and the business stops paying non-deductible GIC.

Common mistakes with ATO debt

• Waiting for the DPN. Options narrow quickly once personal liability is in play.
• Paying the old debt and missing the new BAS. Lenders and the ATO both look at current compliance.
• Borrowing just the debt. Leave room for the next quarter’s obligations if cash flow is tight.
• Hiding part of the balance. It always surfaces, and it can unwind an approval late in the process.
• Ignoring the cause. If pricing or margins are the problem, see our business debt refinance and bad credit business loans pages for the wider picture.

Ready to get the tax office off your back?

Owing the ATO feels heavy, but it’s one of the most common situations we see, and it’s far from the end of the road. Tell us about the debt in our short form; it takes roughly a minute and doesn’t trigger a credit check at that stage. Your details aren’t shopped around to a queue of lenders, so there’s no flood of calls. A real person reads your situation, including the notices you’ve received, and phones you to talk through the options that genuinely fit. Please give the real balance and any property you own on the form, because that’s what lets us point you to the right lender on the first go.

See if you can clear your ATO debt →