On an ATO payment plan? Whether to roll it into a business debt consolidation

If you’re on an ATO payment plan and also juggling other business debts, the plan can usually go into the consolidation. Whether it should comes down to three things: how much interest is still building on it, how long it has left to run, and whether adding it keeps the new repayment comfortable. For most stretched businesses, paying the ATO out is worth a serious look.

Plenty of owners treat the payment plan as “sorted” because the ATO has agreed to it. The pressure goes quiet, the instalments go out, and attention shifts to the louder creditors. But a payment plan is still debt, and it carries its own costs and its own trapdoor. This guide looks at it the way a lender would when you’re putting a business debt refinance together.

Why does an ATO payment plan still cost you money?

A payment plan stops collection action while you keep up the instalments. It doesn’t stop the interest. The ATO’s own payment plans page is blunt about it: tax debts on a plan “continue to accrue GIC, which compounds daily”. The longer the plan, the more general interest charge you pay overall.

The second change is about tax. In its small business newsroom, the ATO confirms that general interest charge incurred on or after 1 July 2025 can no longer be claimed as a deduction. The same article notes that a registered tax professional may recommend a business loan, and that some interest on loans connected with running a business may be deductible. Ask your accountant how that applies to you, but the direction is clear: ATO interest has quietly become a more expensive way to carry debt than it used to be.

What happens if the plan defaults while you’re refinancing?

This is the trap. The ATO expects you to lodge and pay new obligations on time while a plan is running. If you don’t, the plan may default and the full overdue balance becomes payable immediately.

Refinancing takes some weeks of attention, and it’s easy for a BAS lodgement or a new quarter’s GST to slip while you’re gathering bank statements and payout letters. If that happens, the debt you thought was parked on a tidy instalment schedule can suddenly be due in one hit, and your consolidation goes from planned to urgent.

Three rules keep you safe:

1. Keep paying every instalment until the new loan has settled and the ATO has actually received the money.
2. Lodge everything on time during the application, even if you can’t pay the new amount yet.
3. Tell the lender about any lodgement that’s due before settlement so it can be built into the timing.

When should the ATO plan go into the consolidation?

Here’s a simple way to sort it.

Situation	Usually include it?	Why
Large plan with a year or more to run	Yes	Daily compounding interest on a big balance adds up, and it’s no longer deductible from July 2025
Plan has defaulted or is close to it	Yes, as a priority	A defaulted plan makes the whole balance due and invites firmer collection action
Small plan with only a few instalments left	Often no	Borrowing costs may outweigh the saving; let it run out
Separate income tax and activity statement plans	Case by case	You can include one and leave the other
Including it would push the new loan beyond what trading can carry	No, or restructure first	A consolidation should lower pressure, not create a new stretch

If you’re sitting in the top two rows, it’s worth finding out what a consolidation could look like before the next instalment date comes round.

How do lenders treat a payment plan in your application?

Lenders don’t see an ATO payment plan as a black mark on its own. Plenty of sound businesses have used one. What they look for is the pattern around it:

• Lodgements up to date. This matters more than almost anything else. A business with all BAS and returns lodged and a plan in place is a very different proposition from one with three quarters unlodged.
• Instalments paid on time. Your ATO statement of account and bank statements show whether the plan has been honoured.
• Why the debt built up. A one-off cause, such as a big project that paid late or a slow season, is easier to accept than a long run of unpaid GST.
• What’s changed. A separate tax account, a bookkeeper or a set-aside routine tells a lender the debt is unlikely to come back.

Tax debt is considered case by case. Property security often makes larger consolidations possible: property-secured business loans run from $20k to $5m, while unsecured and cash-flow options typically sit between $5k and $500k, sized on turnover and bank statements. Our ATO tax debt loans page covers how lenders view tax debt on its own.

What does the settlement order look like?

Getting the order right avoids the default trap and makes sure every creditor is paid on the same day.

1. Pull a current ATO balance for each account you want paid out. Income tax and activity statement plans are separate, so you’ll need a figure for each.
2. Gather written payout figures from your other lenders, with the date each figure is valid to.
3. Keep paying everything as normal during assessment and approval.
4. Confirm amounts a few days before settlement. ATO balances move daily because of compounding interest, so the figure on settlement day will be slightly higher than last month’s.
5. Settle. Many lenders pay creditors, including the ATO, directly at settlement, so the money goes where it’s meant to.
6. Check the ATO account afterwards to make sure the payment landed on the right account and the plan shows as finalised.

Illustrative example: a landscaping business with three debts

This is an illustrative example, not a real client. A landscaping company has an activity statement payment plan of about $90k with 18 months left to run, a short-term loan with weekly debits, and a supplier account sitting at $25k on extended terms. Trading has recovered after a wet winter, but the three repayments together leave almost nothing in the account at month end.

The owner lists every debt, asks the accountant for current ATO balances and gets payout letters from the short-term lender and the supplier. Lodgements are all up to date and every plan instalment has been paid. The owners also have equity in their home.

A lender looks at the full picture and proposes one property-secured facility to clear the ATO plan, the short-term loan and the supplier, plus a small buffer for the next quarter’s BAS. The plan is paid on the settlement day, the weekly debits stop, and the owner sets up a separate account for GST from the first week. For more on how lenders look at trades, see our guide to landscaping business loans.

What if a consolidation isn’t the right fix?

A new loan only helps if the business can repay it from trading. If every month is losing money, borrowing to pay the ATO simply moves the debt from one creditor to another and adds costs.

If you’re not sure the business is viable, the free Small Business Debt Helpline on 1800 413 828 offers confidential help from financial counsellors, including negotiating payment arrangements with the ATO and other creditors and checking whether the business can keep going. Your accountant is the other essential call. A consolidation works best for businesses that are sound underneath and simply carrying debt in the wrong shape. For a broader look at structuring the new facility, our short-term business loans and secured business loans pages explain the main options.

Thinking of clearing the ATO plan? See where you stand

A payment plan can feel like the one debt that’s under control, right up until a missed lodgement turns it into the most urgent bill on your desk. If your list includes the ATO and a couple of other lenders, it’s worth seeing what one well-structured facility could do.

The enquiry takes about a minute, and there’s no credit check when you first enquire. We don’t hand your details to a pile of lenders, so your phone won’t start ringing with strangers. A real person reads your situation, tax debt and all, and calls you to talk it through. Please answer the form accurately, including the ATO balance and what’s on a plan, so the first option we discuss is one that can actually work.

Check if a consolidation could work for you →