Using a sale and leaseback to clear an ATO debt

A sale and leaseback lets a business sell equipment it owns to a financier, use the cash to pay the ATO, and lease the same equipment back so work carries on. It suits businesses whose value is sitting in trucks, plant or machinery rather than in the bank. Before you sign, check the GST and income tax effects of the sale with your accountant.

Many businesses with a tax debt are not short of assets. They’re short of cash. A transport operator with three paid-off prime movers, or a manufacturer with a workshop full of owned machines, can be worth a lot on paper and still be unable to pay a quarter’s BAS. A leaseback is one way to close that gap without selling anything off-site.

How does a sale and leaseback actually clear the debt?

The mechanics are simple:

1. A financier values the equipment you own.
2. It buys the equipment from your business for an agreed amount.
3. The money lands in your business account and you pay the ATO.
4. You lease the equipment back under a lease agreement and keep using it as before.
5. At the end of the lease, depending on the structure, you may be able to pay a residual and take ownership back.

The equipment doesn’t move. Your drivers or operators won’t notice anything has changed. What has changed is the balance sheet: a tax debt has been swapped for a lease commitment. The sale and leaseback page covers the structure in more depth.

When does this make more sense than a payment plan?

An ATO payment plan is often the first step, and for many businesses it’s enough. A leaseback becomes worth considering when:

• The plan instalments are too heavy for monthly cash flow, but you own assets.
• The ATO wants the debt cleared faster than the business can manage from revenue.
• GIC is adding up. The ATO’s payment plans page says tax debts on a plan “continue to accrue GIC, which compounds daily”.
• A plan is at risk. The ATO explains that if a plan defaults, the whole overdue balance becomes immediately payable and it may take firmer action (managing your payment plan).
• Credit reporting is a concern. The ATO can report businesses with at least $100,000 overdue by more than 90 days that aren’t engaging with it to credit reporting bureaus (disclosure of business tax debts). Clearing the debt removes that risk.

The test is cost and cash flow. Lay the remaining plan instalments and expected GIC next to the lease payments and the total cost of the leaseback over its term. Your accountant can help you compare the two properly.

What will a financier look at?

What they check	Why it matters
What the equipment is worth today	The amount released is based on current value, not purchase price
Age, hours or kilometres, and condition	Older or worn assets release less and may face term limits
Clear title	The financier must be able to own the asset outright after settlement
Existing finance	Any amount owed is paid out first and comes off what you receive
How mainstream the asset is	Trucks, trailers and common plant resell easily; specialised gear doesn’t
The ATO position	Whether the debt is on a plan, in arrears, and whether the leaseback clears it
Ability to meet the lease	Bank statements showing the business can carry the new payment

Expect a PPSR search on the equipment and on your business. If anything else is registered against it, such as a general security agreement from another lender, that will need to be dealt with before settlement.

If you’re unsure whether your gear would release enough to make a difference, a 60-second enquiry gets a real person looking at it, with no credit check at that stage.

Which equipment works best for clearing a tax debt this way?

The equipment that releases the most is the equipment a financier is most confident it could resell. That usually means:

• Prime movers, rigid trucks and trailers with reasonable kilometres;
• Earthmoving gear such as excavators, loaders and skid steers;
• Forklifts and materials-handling equipment;
• Mainstream workshop and factory machines from well-known makers.

Equipment that’s bolted into a building, custom-built, very old or used by only a handful of businesses usually releases little or nothing. Fit-outs are rarely accepted at all.

It also helps to offer more than one asset. A small fleet gives the financier a spread of security and can lift the total amount released. Our guide on how financiers value equipment for a sale and leaseback explains how the valuation is built and how to get the most realistic figure.

What tax questions should you ask before selling to a financier?

Two questions, both for your accountant.

GST on the sale. For a GST-registered business, selling a capital asset such as a truck or machine is generally a taxable sale. That means part of what the financier pays you is GST, which you report on your BAS. Plan for it so the leaseback doesn’t create a fresh BAS debt while you’re paying off the old one.

Income tax on the sale. Selling a depreciating asset triggers a balancing adjustment. If the sale price is above the asset’s written-down value, the difference is generally assessable income. Equipment that’s been heavily depreciated, or written off instantly, can produce a taxable gain on sale even though nothing has physically changed.

Neither point rules a leaseback out. They just need to be in the numbers before you commit.

What can go wrong?

• Not releasing enough. If the equipment is old or specialised, the amount may not clear the debt, leaving you with a lease and part of the ATO debt.
• Ignoring the tax on the sale. A new GST or income tax bill can undo some of the benefit.
• A lease that’s too long. Paying for a machine well beyond its working life ties up cash later.
• Using it to paper over a deeper problem. If the business can’t pay ongoing tax from current trading, a leaseback buys time but doesn’t fix the cause. Make sure the next BAS is covered.

Where the equipment won’t release enough, other options include an unsecured or cash-flow facility sized on turnover (typically $5k to $500k) or a loan secured by property (property-secured business loans run from $20k to $5m). The ATO tax debt loans page compares the routes.

An illustrative example

Illustrative only. A regional freight business owns two prime movers and three trailers outright. Fuel costs and a slow-paying customer left it with a tax debt of around $150k. It’s been on an ATO payment plan, but a missed instalment pushed the plan into arrears.

A financier values the two prime movers and a trailer and agrees to buy them for $190k, then lease them back over four years with a residual at the end. The owner’s accountant points out that GST will be part of the sale and that the trucks have been heavily depreciated, so some of the sale price will show up as income. They set aside enough for both.

The ATO debt is cleared, the arrears letter becomes history, and the trucks keep running the same routes. The trucking business loan page has more on how transport operators fund growth once the tax is under control.

Equipment in the yard and the ATO on the phone? Here’s a next step

We help business owners with ATO debt all the time, and an owned fleet or workshop full of machines is often the strongest card they hold. The aim is to turn that into a plan the ATO accepts and your cash flow can carry.

The enquiry takes about a minute and there’s no credit check when you first enquire. We won’t send your details to a pile of lenders, so your phone won’t light up with strangers. A real person looks at your equipment, your tax position and your trading, then calls you. Please fill the form in accurately, including what you owe the ATO and on the equipment, so we can match the right option first time.

See if you qualify →