ATO Tax Debt and Finance: Your Options as an Australian Business Owner
For many self-employed professionals and business owners, a tax bill is not a sign of poor management. It is often simply a timing mismatch between cash flow and obligations. But when that bill becomes a lingering debt with the ATO; one that is accruing interest and sitting on your balance sheet; many business owners assume their borrowing options have run out.
The reality is quite different. Having a tax debt does not automatically disqualify you from finance. Whether you need to purchase a property, access equity, or restructure your finances, there are viable paths forward; and given recent legislative changes, the urgency of addressing ATO debt strategically has never been greater.
What Changed in July 2025: Why This Matters Now
Before exploring your options, it is worth understanding a significant regulatory shift that changed the cost calculation for any business owner carrying ATO debt.
The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 is now law. This means any General Interest Charge (GIC) incurred on and after 1 July 2025, regardless of whether the debt relates to an earlier income year, will no longer be tax deductible.
The GIC rate is high, and it compounds daily. Previously, this could be claimed as a deduction on tax returns. That cushion is now gone entirely.
Small and medium enterprises face the most severe consequences, representing a significant portion of the ATO's collectable debt and often having limited access to alternative financing. These businesses frequently rely on ATO payment plans during cash flow difficulties, making the increased cost particularly burdensome.
In short: carrying ATO debt has become materially more expensive since 1 July 2025, and the case for resolving it promptly; through refinancing or other means; has strengthened considerably.
Option 1: Borrowing While Keeping the ATO Debt in Place
A common misconception is that you must fully pay out your tax debt before a lender will consider an application. That is not always the case. If you need to purchase a property or access funds for business growth while keeping your current ATO arrangement in place, you do have options.
Mainstream lenders will consider applications from borrowers with existing tax debt in certain circumstances. The non-negotiable requirement is a formal payment plan with the ATO, and lenders will generally want to see:
A formal arrangement in place with the ATO, documented and current
A clear history of conduct on that arrangement; often six months or more of consistent payments
Serviceability that demonstrates you can comfortably meet both the new loan repayments and your ongoing ATO commitment
Specialist and non-bank lenders take a more commercial view. Where your financials are not yet up to date, or where the payment plan has not been in place long enough to satisfy a major bank, specialist lenders can often assess your position using alternate documentation; such as BAS statements, business bank statements, or an accountant's declaration. This approach gives a more accurate picture of your actual cash flow and business performance, rather than relying solely on tax returns.
Option 2: Refinancing to Clear the ATO Debt
For business owners who already hold property; whether residential or commercial; keeping the ATO debt in place may now be the more expensive choice. A smarter strategy may be to refinance your existing mortgage or commercial facility to pay out the tax debt entirely.
This involves accessing the equity in your property to clear the ATO balance. The potential benefits include:
A significantly lower interest rate. Mortgage rates are materially lower than the ATO's GIC rate, which compounds daily and is no longer deductible.
Improved cash flow. Rather than a short-term, high-pressure payment plan with the Tax Office, the debt is structured over a longer term; materially reducing monthly outgoings and freeing up working capital.
Removal of ATO risk. Clearing the debt removes the ongoing risk of ATO enforcement action, which can include director penalty notices, garnishees, and referral to external debt collection.
One important note: interest on a loan used to refinance ATO debt might be deductible for tax purposes, provided the borrowing is connected to business activities. However, the treatment depends on individual circumstances and the nature of the underlying debt. This is a conversation to have with your accountant before proceeding; the lending structure and the tax outcome need to be considered together.
Which Path Is Right for You?
The right approach depends on your current position: whether you own property with accessible equity, how long your ATO payment plan has been in place, the state of your financials, and your broader financial goals.
If you need to purchase and cannot clear the ATO debt first: specialist lenders may still be able to support you, provided the debt is being managed with a formal arrangement.
If you hold property with equity: refinancing to clear the debt is worth modelling carefully, particularly given that the after-tax cost of carrying GIC has increased substantially since July 2025.
In either case, the worst approach is to do nothing. ATO debt compounds daily, is no longer deductible, and lenders take a dim view of debt that is unmanaged or undisclosed.
How Imperium Finance Can Help
ATO debt is a common challenge for business owners; but it does not have to be a roadblock. The key is to assess your position clearly, understand which lenders will look at your file, and structure a solution that addresses the debt while keeping your financial goals on track.
At Imperium Finance, we work with self-employed borrowers and business owners across a range of complex lending scenarios; including those managing ATO obligations. We can assess your position, identify the right lender for your circumstances, and help you structure a solution that works.
Contact us today for a confidential discussion about your options.