tl;dr: Yes – it is possible to obtain finance even if your business owes money to the Australian Taxation Office (ATO). The key factors are the size and age of the debt, whether it is under a formal payment plan and how well your business demonstrates serviceability. From 1 July 2025, interest charges on overdue tax debts are no longer tax deductible, making it more expensive to carry tax debt. Many businesses therefore choose to refinance ATO debt with a business loan. This guide explains how lenders view ATO debt, what documents you need and how to improve your chances of approval.
How lenders view ATO debt
The ATO charges a General Interest Charge (GIC) on overdue tax. Rates are updated quarterly and tend to be higher than mainstream business loan rates. Interest on ATO debts incurred on or after 1 July 2025 is no longer tax deductible, increasing the effective cost of carrying tax debt.
Lenders assess applications by looking at:
- Debt age and size: A recent or small debt under a payment plan is less concerning than a large, long‑overdue debt. A debt over $200,000 may require security.
- Payment plan status: If you have an ATO payment plan in place and are meeting instalments, lenders consider you lower risk. The ATO offers self‑service plans for debts up to around $200,000, but often requires an initial lump‑sum contribution.
- Reason for the debt: Lenders differentiate between tax debts caused by temporary cash‑flow issues or one‑off events (e.g. capital gains tax) and those resulting from poor compliance. Money.com.au notes that debts due to accounting errors or capital gains are viewed more favourably than debts resulting from failure to lodge returns.
- Serviceability: Lenders examine your revenue, expenses and cashflow to ensure you can repay the loan and the tax debt. They may request bank statements, financial statements and BAS lodgements.
- Security and credit history: Banks may require property security and may decline if the director’s personal credit history is poor. Non‑bank lenders offer unsecured options but at higher rates.
Reasons to refinance ATO debt
- Lower interest costs: GIC rates are often higher than business loan rates. Refinancing can reduce the cost of borrowing.
- Tax deductibility: Interest on a commercial loan is generally tax deductible, whereas GIC on ATO debt is not.
- Cash‑flow management: A business loan allows repayments over one to five years, spreading the burden and preserving working capital.
- Avoiding penalties and enforcement: Clearing the debt prevents garnishee notices, director penalty notices or disclosure of tax debts to credit reporting agencies. The ATO can make directors personally liable for unpaid super, PAYG withholding and GST.
Types of finance available
- Short‑term business loan: Borrow against property or assets. Terms from one to five years. Suitable for larger tax debts or consolidation.
- Unsecured business loan: Fast approval; amounts up to about $150,000. Higher interest rates. Lenders require bank statements and may ask for a personal guarantee.
- Invoice finance: Advance cash against invoices. Useful if your tax debt arises from slow‑paying customers.
- Line of credit: Revolving facility to cover tax debts and other expenses.
- Debt consolidation loan: Combine tax debt with other finance needs into a single facility.
Improving your chances of approval
- Establish a payment plan: Engage with the ATO early. Even if you plan to refinance, having a payment arrangement shows lenders you are proactive.
- Provide full documentation: Include ATO statements, BAS lodgements, financial statements and cashflow forecasts. Lenders need to see how the debt arose and how you will repay it.
- Offer security where possible: Property or equipment can reduce interest rates and improve approval chances.
- Demonstrate serviceability: Provide a detailed budget showing you can service the loan and keep up with future tax obligations.
- Avoid new tax debt: Lenders are wary of businesses that build up new liabilities after refinancing. Implement systems to set aside PAYG withholding, GST and super.
FAQs
Can I get a loan if my business is under a director penalty notice? Once a director penalty notice (DPN) is issued, directors have 21 days to pay the debt or enter into administration. Some lenders will still consider finance if the business has a plan to pay the debt, but options are limited and rates are high.
Is interest on ATO payment plans tax deductible? No. Interest charges on or after 1 July 2025 are not tax deductible.
Will refinancing my tax debt affect my credit score? It may have a short‑term impact, but demonstrating timely repayments can improve your credit over time. Failure to address tax debt can lead to enforcement actions that negatively affect your credit.
Definitions
- General Interest Charge (GIC): Daily compounding interest applied by the ATO on unpaid tax debts.
- Director Penalty Notice (DPN): A notice that makes company directors personally liable for unpaid PAYG withholding, GST and super.
External links
- [ATO – Managing payments] – guidance on preventing tax debt and payment plans.
- [Money.com.au – Tax debt loans] – overview of tax debt finance options.
- [TaxAssist – Financing your ATO debt] – discussion on interest rates and benefits of refinancing.
Need help securing finance with ATO debt? Our brokers specialise in such cases. Reach out or partner with GPS Finance Group to support your clients.