tl;dr: Setting up a payment plan with the ATO can improve your chances of obtaining finance because it demonstrates proactive management of tax debt. However, lenders still assess the size of the debt, the business’s ability to service both the payment plan and the loan, and the underlying cause of the debt. Payment plan interest is no longer tax deductible from 1 July 2025, making refinancing an attractive option.
How ATO payment plans work
The ATO allows businesses with debts under about $200,000 to set up a payment plan online. For larger amounts, businesses must contact the ATO to negotiate terms. Payment plans typically require an upfront lump‑sum payment, followed by monthly instalments. Interest is charged at the GIC rate and compounds daily. From 1 July 2025 interest charges on tax debts are no longer tax deductible.
Benefits of having a payment plan
- Demonstrates commitment: Lenders view businesses on payment plans more favourably than those ignoring ATO debt. It shows you recognise the debt and are taking steps to repay it.
- Stops escalation: Entering a payment plan can prevent the ATO from issuing garnishee notices or director penalty notices. However, failure to meet instalments can trigger enforcement.
- Provides breathing space: Spreads repayment over time, which may allow you to invest in growth or restructure your operations.
Impact on loan approval
Lenders consider the following when assessing an applicant with an ATO payment plan:
- Remaining balance: A small remaining balance and consistent payment history are viewed positively. A large outstanding balance reduces borrowing capacity.
- Upfront contribution: The amount already paid under the plan demonstrates your ability to manage cashflow.
- Purpose of the loan: Borrowing to pay the ATO is acceptable; borrowing for unrelated expansion while leaving ATO debt unpaid is less so.
- Security: Offering property or equipment as collateral can offset the risk of tax debt.
- Serviceability: Lenders will factor payment plan instalments into your debt‑service calculations. Demonstrate that after paying the instalment you still have sufficient cash to service the new loan.
Refinancing vs payment plans
Refinancing tax debt with a loan may reduce interest costs (since GIC rates can be higher than loan rates) and allow tax‑deductible interest. However, refinancing converts an unsecured debt into a loan that may require security and personal guarantees. Evaluate whether the business has reliable cashflow to service a loan. In some cases a combination of a payment plan and partial refinancing may be appropriate.
FAQs
Do payment plans affect credit reports? As of 2026, the ATO does not automatically report tax debts under $100,000 to credit bureaus. However, new legislation allows disclosure of larger debts or where businesses fail to engage.
Can I vary the payment plan? Yes. If your circumstances change, you can contact the ATO to renegotiate instalments. Missing instalments without renegotiation can lead to enforcement.
Will lenders approve a loan to pay my tax debt? Many will, provided you have a viable business and can demonstrate serviceability.
Definitions
- Payment plan: An agreement with the ATO to pay a tax debt in instalments over time.
- General Interest Charge (GIC): Interest applied to unpaid tax debts, compounded daily.
External links
- [ATO – Managing payments].
- [Money.com.au – Tax debt loans].
Discuss your ATO payment plan and finance options with our specialists. We also collaborate with accountants and advisors to deliver solutions.