tl;dr: Refinancing tax debt can reduce borrowing costs and free up working capital, but it must be done carefully to avoid new risks. This guide outlines the steps to refinance ATO debt, the legal considerations and how to structure a loan for maximum benefit.
Step 1: Understand your debt
- Obtain a statement of account from the ATO to determine the size of the debt, accrued interest and any penalty charges.
- Check whether the debt includes PAYG withholding, GST, super guarantee charge or income tax – some debts may attract DPNs.
- Note that interest on tax debts incurred on or after 1 July 2025 is not tax deductible.
Step 2: Decide on the type of finance
- Secured term loan: Suitable for larger debts; lower interest rates; requires property or asset security.
- Unsecured loan: Faster approval; higher rates; suitable for smaller debts.
- Invoice finance: Good for businesses with strong receivables.
- Line of credit: Provides flexibility; interest only on amount drawn.
- Debt consolidation: Combine tax debt with other obligations to improve cashflow.
Step 3: Prepare your application
- Provide financial statements, tax returns, BAS lodgements and bank statements. Show that your business can service the new loan.
- Explain the cause of the tax debt; lenders prefer one‑off events like CGT liabilities over ongoing non‑compliance.
- Present a budget demonstrating how the loan will be repaid and how future tax obligations will be met.
- Offer security if possible.
Step 4: Close the tax debt
- Use the loan proceeds to pay the ATO in full. Keep evidence of the payment. Request confirmation from the ATO that the debt is cleared and that any DPN has been remitted.
- Maintain discipline to avoid new tax debts; set aside funds for PAYG, GST and super.
Legal considerations
- Personal guarantees: Unsecured loans may require directors to personally guarantee the debt. Understand the implications for your personal assets.
- Loan documents: Read the terms carefully. Watch for fees, default interest rates and security clauses.
- Tax advice: Refinancing may have tax implications. Consult a tax adviser to ensure interest remains deductible and to account for any CGT events.
- Credit score: Refinancing can temporarily impact your credit but may improve it if managed well.
FAQs
Can I negotiate the interest rate? Yes. Increased competition among lenders has narrowed SME lending rate spreads. Use brokers to compare rates.
Is refinancing always better than an ATO payment plan? Not always. Payment plans have flexible terms but interest is non‑deductible. A loan may have higher monthly repayments but a lower overall cost.
Will refinancing restart the DPN clock? Once the ATO debt is cleared, any existing DPN can be remitted. New tax debts arising later could trigger new DPNs.
Definitions
- Debt consolidation: Combining multiple debts into a single loan with one repayment schedule and interest rate.
- Secured loan: A loan backed by collateral; typically has lower interest rates.
- Unsecured loan: A loan without collateral; higher risk for the lender, hence higher interest rates.
External links
- [Money.com.au – Tax debt loans].
- [TaxAssist – Financing your ATO debt].
- [ATO – Managing payments].
Our brokers can help refinance ATO debt legally and safely. Contact us for a confidential discussion or join our partner network to assist your clients.