Quick answer
Yes, a bridging loan can still be possible with an ATO debt. Lenders consider it case by case, looking mainly at the property security and the exit. What they need is a clear plan for the tax debt: either paying it from the bridge, keeping a payment plan on track, or clearing it from sale proceeds. Unmanaged debt is the real problem, because the ATO can direct third parties holding your money to pay it instead.
Key points
- ATO debt is considered case by case on property-secured bridging loans.
- Lenders care most about whether the debt is being managed and how it fits the exit.
- The ATO can issue garnishee notices to people who hold or owe you money.
- Business tax debts of $100k or more overdue by more than 90 days can be reported to credit bureaus if you're not engaging with the ATO.
- Paying the debt out of the bridge, or settling it from the sale, are both common structures.
Yes, you can often still get a bridging loan with an ATO debt. Property-secured lenders look at it case by case, and the property and the exit carry most of the weight. What they need from you is a credible plan for the tax: pay it from the bridge, keep a payment plan on track, or clear it from the sale. Ignoring it is what kills deals.
Tax debt and a property move often arrive together. A business has a strong couple of years, falls behind on BAS while it grows, then finds the perfect premises just as the old ones are listed. Here’s how to stop the tax office becoming the reason the deal falls over.
Why does an ATO debt matter more on a bridge than on other loans?
A bridging loan is repaid from a specific event: a sale or a refinance. Anything that could interfere with that event worries a lender more than it would on a loan repaid from monthly trading.
An unmanaged ATO debt can interfere in a few ways:
- It can reach the money. The ATO’s firmer action page explains that a garnishee notice requires a third party who holds or owes you money to pay it to the ATO instead. For individuals, the ATO lists parties who owe money from a property sale among its examples. For businesses, it lists banks, trade debtors and merchant facility providers.
- It can grow during the bridge. Penalties and interest keep accruing, and new BAS obligations keep arriving while you’re juggling two properties.
- It can hit the refinance. If your exit is a long-term bank loan, an overdue tax debt can make that lender hesitate at the last moment.
- It can land on directors. The same ATO page notes that once 21 days have passed after a director penalty notice is issued, the ATO can recover the penalty, which brings personal assets into the picture.
None of this rules you out. It just means the tax debt has to be part of the plan from the first conversation.
How will a lender look at your tax position?
Lenders sort ATO situations into fairly predictable groups:
| Your ATO position | How a bridging lender usually reads it |
|---|---|
| Small debt, lodgements up to date | Minor; often paid out at settlement |
| Larger debt on a payment plan that’s being kept | Manageable; the plan shows engagement |
| Debt with a payment plan that has defaulted | A concern; the lender may require a payout |
| Debt reported to credit bureaus | Serious but not always fatal on property-secured lending |
| Garnishee notice or director penalty notice issued | Urgent; usually needs to be cleared as part of the deal |
| Lodgements behind as well | Get them lodged; the true debt isn’t known until you do |
The last row matters more than people expect. If returns or activity statements haven’t been lodged, nobody knows the real figure, and a lender can’t build an accurate peak debt. Getting lodgements up to date, even before you can pay, is one of the most useful things you can do before applying.
What about the credit bureau reporting rules?
The ATO can report business tax debts to credit reporting bureaus. Under its disclosure rules, it may do so where you have an ABN, at least $100k of tax debt is overdue by more than 90 days, and you’re not engaging with the ATO to manage it. You get a written notice first and 28 days to act.
Engaging includes complying with a payment plan or having an active objection or review. So a business with a large debt that is on a working payment plan is in a very different position from one that has gone quiet. If you’ve received a notice of intent to disclose, deal with it before you apply for the bridge if you possibly can.
If you’re already talking to the ATO and you have a property deal coming up, tell us about both together and we’ll look at how to structure it.
Should you pay the ATO out of the bridge or from the sale?
There are three common structures, and the right one depends on the size of the debt and the strength of the security.
1. Pay it out at the start. The tax debt is added to the bridging loan and paid to the ATO when the bridge settles. It increases peak debt, but removes the risk of garnishee notices or reporting during the bridge. This is often what lenders prefer when the debt is significant and the security can carry it. A dedicated ATO tax debt loan works on similar principles.
2. Keep a payment plan running. If the debt is modest and you’re already on a plan, you might keep paying it from trading while the bridge runs. The ATO says businesses owing $200,000 or less may be able to set up a plan online; larger debts need a phone call. The lender will want evidence the plan is being met.
3. Clear it from the sale proceeds. The debt is paid when the old property sells. This only works if the lender is confident the sale will happen and that the ATO won’t act first. It’s the riskiest of the three on a bridge with a long or uncertain sale.
Don’t let the sale create a new tax debt
There’s a trap on the far side of the bridge too. Selling the old property can create tax of its own, depending on how it’s held and used: capital gains, possibly GST on a commercial sale, and the knock-on effect on your next return. If the sale proceeds all go to the bridging lender and nothing is set aside, you can clear one ATO debt only to create another a few months later.
Ask your accountant for a rough estimate of the tax on the sale before you set the bridge up. Some owners build that amount into the end debt, others keep a reserve from trading. Either way, a lender will be more comfortable knowing you’ve thought about it, and the long-term lender who refinances the end debt will be too.
Illustrative example: new workshop, old workshop and a BAS debt
Illustrative only. A metal fabrication business owns its workshop, worth about $1.1m with $300k owing to the bank. It has outgrown the site and finds a larger one for $1.5m. It also has $90k of overdue BAS debt after a big contract was paid late, and it’s on a payment plan that has slipped twice.
A bridging lender takes security over both workshops. The facility pays out the bank, funds the new purchase and duty, pays the ATO debt in full and prepays interest for nine months. With the tax debt gone, there’s no risk of a garnishee notice catching the sale proceeds. The old workshop sells after six months, the bridge is reduced to an end debt secured on the new workshop, and the business refinances that with a long-term lender. Its clean, cleared ATO position helps that refinance along.
What should you do before applying?
- Lodge any outstanding BAS and income tax returns so the debt is known
- Get a current ATO statement of account
- If you’re on a payment plan, keep every instalment up to date from here on
- Respond to any ATO notice within its deadline
- Tell your accountant about the property plan, including any tax on the sale
- Gather the property details: values, debts, contracts and timelines
Property-secured options also include caveat loans for very short gaps. If your credit file has taken other knocks too, our page on bad credit business loans explains how lenders weigh it.
Owe the ATO and need to move? Here’s the next step
We see business owners with tax debt and a property deal on the go regularly, and we don’t treat it as a dead end. The question is simply how to structure the bridge so the ATO is dealt with and the exit stays clean. Property-secured facilities run from $20k to $5m.
The enquiry takes about a minute and there’s no credit check when you first enquire. We don’t send your details to a pile of lenders. A real person reads your situation, including the tax position, and calls you to work through it. Please be accurate about what’s owed to the ATO and whether lodgements are up to date, because that detail decides which lender is the right fit first time.
Frequently asked questions
Will a lender approve a bridging loan if I owe the ATO?
Some will, on a case-by-case basis. A property-secured bridging lender is mostly concerned with the value of the security and the strength of the exit. An ATO debt becomes a problem when it's unmanaged, growing, or likely to interfere with the sale proceeds that are meant to repay the bridge.
Can the ATO take my property sale proceeds?
The ATO can issue garnishee notices requiring a third party who holds or owes you money to pay it to the ATO instead. Its own guidance lists parties owing money from a property sale among the examples for individuals, and banks and trade debtors for businesses. That's why lenders want the tax debt dealt with before or at settlement.
Will my ATO debt show on my credit file?
It can. The ATO may report a business tax debt to credit reporting bureaus if you have an ABN, at least $100k is overdue by more than 90 days, and you're not engaging with the ATO to manage it. It sends a notice first and gives you 28 days to act. Complying with a payment plan counts as engaging.
Should I set up a payment plan before applying?
It usually helps. The ATO says businesses owing $200,000 or less may be able to set up a plan online, while larger debts need a phone call. A plan that's being kept shows a lender the debt is under control, though many bridging deals still pay the debt out in full.
Can the bridging loan pay out the ATO debt?
Often, yes, if the security supports the extra amount. The tax debt is simply added to the peak debt, the ATO is paid at settlement, and the bridge is repaid from your sale or refinance. It removes the risk of the ATO interfering later.
I'm a company director. Does a director penalty notice change things?
It adds urgency. The ATO can recover director penalties personally once 21 days have passed after it issues a director penalty notice. If you've received one, tell the lender straight away, because it affects both timing and which security is at risk.