Using a caveat loan to clear a payroll tax debt

If your business is behind on payroll tax and you own property with equity, a caveat loan can pay the debt in one hit and buy the business time to recover. It’s a short-term fix, so it works best when you know where the repayment will come from: a big debtor, a contract milestone, a property sale or a refinance. Ask the revenue office about a payment plan first, then compare.

Payroll tax tends to sneak up on growing businesses. Wages climb past the threshold, a couple of monthly returns slip, and suddenly a state revenue office is asking for a sum the business doesn’t have spare. Because it’s a state tax, the rules and the people chasing it are different from the ATO, and the escalation can be fast.

What is payroll tax, and who chases it?

Payroll tax is a state or territory tax calculated on the total wages you pay each month, and it can also reach some payments to contractors. You only pay once your Australian wages pass the threshold for the state or territory, and business.gov.au points out that thresholds and rates vary between jurisdictions. Its own example shows a business paying wages in Victoria and South Australia having to register in one state but not the other, depending on the wage bill.

Each revenue office collects payroll tax for wages paid in its state. In Queensland, for instance, periodic returns and payments are due 7 days after the end of the return period, and annual returns by 21 July. Late lodgment or payment brings unpaid tax interest and penalties.

What can a revenue office do if you don’t pay?

This is where payroll tax debt gets serious. Revenue NSW sets out its options plainly on its insolvency and payroll tax page. If a debt isn’t paid, it may:

• issue a garnishee notice to collect money from a third party, such as your bank
• lodge a caveat over land you own
• issue a Directors Notice, making the director liable for the company’s debt
• pursue another member of a grouped business for the debt
• start action to wind up the company

Interest keeps accruing until the debt is paid. Two of those steps hit property owners directly: a caveat over your land stops you selling or refinancing it freely, and a Directors Notice turns a company debt into a personal one.

Should you ask for a payment plan first?

Usually, yes. Revenue NSW says to contact it as soon as possible, and it has a team that handles eligibility for instalment plans and deferred payments. A plan you can genuinely keep to is often the cheapest path.

A property-secured loan becomes the better option when:

• the revenue office won’t agree to a plan, or the plan’s instalments are more than cash flow can carry
• a garnishee is already stopping the business from paying suppliers and staff
• there’s also ATO debt or supplier arrears, and clearing everything at once is simpler
• a director is facing personal liability and wants the debt closed off now
• you have a clear repayment event in the next few months

If one or more of those sounds familiar, tell us about the debt and the property in a 60-second enquiry.

How does a caveat loan clear the debt?

A caveat loan is short-term business finance where the lender lodges a caveat on your property’s title rather than registering a mortgage. Because there’s no mortgage to register and the existing home lender usually doesn’t need to be involved, it’s typically the quickest way to put property security in place.

At settlement, the lender can pay the revenue office directly, so the debt is cleared and you have confirmation in hand. If the revenue office had already lodged its own caveat, clearing the debt is what gets it withdrawn. We cover that situation in more detail in a revenue office caveat on your title.

Option	What it’s best for	What to weigh
Revenue office payment plan	Smaller debts, steady cash flow	Must keep every instalment; interest continues
Caveat loan	Fast clearance, short gap, known exit	Short term; highest-cost form of property security
Second mortgage	Larger debts or a longer recovery	Takes a little longer to set up; registered behind the home loan
First mortgage	Debt-free property or consolidating several debts	Replaces any existing loan on the title

If the business needs more than a few months to get back on its feet, a second mortgage behind your existing loan usually makes more sense than a caveat.

What will a lender want to see?

Lenders on short property loans focus on three things: the security, the purpose and the exit.

The security. The property’s address, its rough value, what’s owing on it and who owns it. A rates notice and the current loan statement cover most of this.

The purpose. A copy of the payroll tax assessment or statement of account, plus any notices you’ve received. If there’s also ATO debt, have the ATO’s figure ready, because bad credit and ATO debt are looked at case by case and it’s better to show everything at once.

The exit. How the loan will be repaid. That might be a large invoice due in eight weeks, a contract payment schedule, the sale of a property or equipment, or a refinance to a longer-term loan once the tax arrears are gone and the business’s statements look cleaner.

An illustrative example

Illustrative only. A commercial cleaning company in Sydney grows quickly after winning two hospital contracts. Its wage bill passes the payroll tax threshold, and in the scramble of hiring, three monthly returns aren’t paid. The debt reaches $110k, and a garnishee notice lands on the business account, freezing the money needed for the next pay run.

The director owns the family home with a bank loan and good equity above it. A caveat loan of $120k clears the payroll tax and covers the next pay cycle. The hospital contracts pay monthly on 45-day terms, so the plan is to repay from the next three months of contract receipts, with a second mortgage as the fallback if a payment runs late. The garnishee is lifted once the debt is paid, and the director’s personal exposure under a Directors Notice never eventuates because the debt is gone before that step is reached. The cost of the loan is known up front, which is easier to plan around than interest and penalties that keep growing while the business negotiates. See cleaning business loans for how lenders read contract-based cleaning businesses.

Once it’s cleared, a few habits stop it happening again:

• Register for payroll tax as soon as wages approach the threshold in any state you pay wages in.
• Diary every return date; monthly returns arrive faster than you think.
• Set aside payroll tax with each pay run, the same way you would for PAYG withholding.
• If you’re grouped with related businesses, track the combined wages, not just one entity’s.
• Talk to the revenue office early if a payment is going to be late.

Facing a payroll tax bill you can’t cover? Let’s look at it together

A payroll tax debt often means the business is doing something right: it’s grown, it’s hiring, and the paperwork hasn’t kept up. That’s a fixable problem, and we help business owners with tax debts regularly. Property-secured loans with us run from $20k to $5m against residential or commercial property, for business purposes only.

Our enquiry form takes roughly a minute, and there’s no credit check when you first enquire. Your details stay with us instead of being sprayed across a pile of lenders, so you won’t be bombarded. A real person reviews the debt, the property and your repayment plan, then calls you to talk it through. Answer the form accurately, including the full amount owed to every tax office, so the first option we put forward is one that actually works.

See if you qualify to clear the payroll tax →