Key Takeaways
- The ATO’s general interest charge (GIC) is 11.51% a year for the October–December 2026 quarter (up from 11.43% the quarter before), it compounds daily, and – since 1 July 2025 – it is no longer tax deductible. A tax debt is now one of the most expensive debts an Australian business can carry.
- The ATO is actively chasing what it owes: the national audit office put small business collectable tax debt at around $35.9 billion, and the ATO has committed to hard reduction targets – which in practice means more payment demands, director penalty notices and disclosure of debts to credit reporting agencies.
- Business tax debts of $100,000 or more that aren’t being managed with the ATO can be disclosed to credit reporting bureaus – and CreditorWatch data shows businesses in that position fail at many times the national average rate.
- You generally have two workable paths: an ATO payment plan (interest keeps accruing at GIC, now with no deduction) or refinancing the debt with a lender – a “tax debt loan” – which clears the ATO and replaces the debt with a structured facility. Which is cheaper depends on your numbers, not on a rule of thumb.
- Mainstream banks have traditionally been wary of tax debt, but a growing group of lenders will refinance ATO debt, especially where there’s property or business assets to secure it and a clear story about why the debt arose.
- This is general information only, not personal tax, credit or financial advice. GIC rates are indexed quarterly and ATO policy changes – confirm current figures and your own position with the ATO, your accountant and your broker before acting.
For years, an ATO debt was quietly treated as the cheapest overdraft in Australia. The interest was deductible, the ATO was slow to chase, and plenty of businesses used the tax account as a buffer when cash was tight. That era is over. Since 1 July 2025 the general interest charge has not been deductible, the rate itself sits above 11% and compounds daily, and the ATO – under pressure to recover tens of billions in unpaid small business tax – has become one of the most assertive creditors in the country.
The result is a question we’re hearing weekly from business owners across Geelong, Melbourne and well beyond: should I leave my tax debt with the ATO on a payment plan, or refinance it with a lender? This guide works through that decision honestly – what the ATO actually does as a debt ages, what a tax debt loan is, how lenders assess one, and how to get ahead of the problem before the next BAS lands. It sits alongside our broader small business loans guide. Mortgage & Finance Advisory (MFA) is based near Geelong and works with business owners Australia-wide by phone and video.
The 2026 Problem: Dearer Interest You Can No Longer Deduct
Two changes turned tax debt from an annoyance into a genuine balance-sheet problem. The first is price. The ATO’s general interest charge is recalculated every quarter, and it has been climbing: 11.43% a year for July–September 2026, stepping up to 11.51% for October–December 2026. Unlike most business loans, GIC compounds daily – the interest is added to the balance and then itself attracts interest, every day the debt remains unpaid.
The second change is the one many owners still haven’t priced in. For GIC (and shortfall interest) incurred on or after 1 July 2025, there is no tax deduction. Before the change, a company paying GIC got some of it back at tax time; now every dollar of ATO interest is paid from after-tax profit. For a profitable business, that makes GIC meaningfully more expensive than its headline rate compared with a deductible business loan at a similar figure – the comparison your accountant runs is no longer close to a wash, and it’s exactly the calculation to do before choosing between a payment plan and a refinance.
Layer on the enforcement environment and the picture is complete. The Australian National Audit Office reported small business collectable tax debt of around $35.9 billion, and the ATO has since committed to firm targets for bringing it down. When a tax office has a number to hit, businesses feel it – in firmer payment plan negotiations, faster escalation, and far less patience with debts that drift.
What Actually Happens When a Tax Debt Drifts
The ATO’s collection process is an escalating ladder, and where you sit on it determines your options – including your refinancing options, because lenders read ATO behaviour as a signal. Broadly, and with the exact triggers varying case by case, the stages look like this:
| Stage | What the ATO does | What it means for you |
|---|---|---|
| Debt accrues | GIC compounds daily on the unpaid balance; reminders and demand letters begin | The debt grows quietly – at current rates it compounds faster than most secured business lending |
| Engaged, on a plan | Payment plans are available for viable businesses that engage; GIC generally keeps accruing during the plan | Breathing room, but not cheap money – and missing instalments or new lodgments can default the plan |
| Not engaging, $100k+ | Business tax debts of $100,000 or more can be disclosed to credit reporting bureaus where the business isn’t effectively engaging with the ATO | Suppliers, trade credit insurers and lenders can see it – credit terms tighten exactly when you need them |
| Escalation | Garnishee notices, director penalty notices (DPNs) that can make directors personally liable for amounts such as unpaid PAYG withholding, GST and super, and ultimately wind-up action | The company’s problem becomes the director’s problem – and refinancing options narrow sharply at this stage |
The credit-reporting stage deserves particular respect, because the data around it is stark.
CreditorWatch reported in mid-2026 that businesses carrying ATO tax debts above the $100,000 disclosure threshold had an average insolvency rate of 21.9% over the previous 12 months – roughly 31 times the national average of 0.7%. It also counted more than 35,000 businesses over that threshold at 30 June 2026, over half of them sole traders. A disclosed tax debt isn’t just a credit-file entry; it’s a flag that the businesses around you – suppliers, insurers, lenders – act on.
Payment Plan or Tax Debt Loan? The Honest Comparison
An ATO payment plan is the right first conversation for many businesses – it exists precisely so that viable businesses with a temporary problem can trade through it, and for smaller debts it can be arranged quickly. A tax debt loan is different: a lender pays out the ATO in full, and you repay the lender over an agreed term. Neither is automatically better. Here’s how they actually compare in 2026:
| Factor | ATO payment plan | Tax debt loan (refinance) |
|---|---|---|
| Cost | GIC (11.51% for Oct–Dec 2026), compounding daily, not deductible | Depends on security and lender – property-secured facilities are generally cheapest; interest on a loan used for business purposes is generally deductible (confirm with your accountant) |
| Credit visibility | Engaging with the ATO helps you avoid disclosure to credit bureaus, but the debt remains with the ATO | ATO is paid out – removing the disclosure risk and cleaning up how your business presents to suppliers and future lenders |
| Flexibility | Plans can default if instalments are missed or new lodgments fall behind; renegotiation is at the ATO’s discretion | A contracted term and repayment you can budget around; refinancing later is a commercial decision, not a discretion |
| Best suited to | Smaller, short-term debts a business can clear quickly from trading cash flow | Larger or lingering debts, businesses with security to offer, or owners who need the ATO off the books to win work, credit or finance elsewhere |
One honest caveat from the other side of the ledger: a tax debt loan fixes the symptom, not the cause. If the debt arose because the business’s pricing, invoicing or BAS provisioning is broken, refinancing without fixing that simply resets the clock. That’s where the funding conversation belongs alongside working capital structure – our guides to cashflow and working capital finance and invoice finance cover the tools that stop the next debt forming. And with payday super now compressing employer cash flow cycles since 1 July 2026, provisioning discipline matters more than it ever has.
How Lenders Assess a Tax Debt Refinance
Tax debt used to be close to an automatic decline at mainstream banks – it was read as a symptom of distress, full stop. That has shifted. A widening group of lenders, from banks through to specialist and private funders, will now refinance ATO debt, but they price and structure according to three things.
The story. A tax debt with a clear, one-off cause – a bad debtor, a flood-damaged season, rapid growth that outran provisioning – reads very differently from a debt that has crept up over three years of under-provisioning. Lenders want the cause, the fix, and up-to-date lodgments. Being behind on lodgment is a bigger red flag to most credit teams than the debt itself.
The security. Property equity – home, investment or commercial – generally unlocks the sharpest pricing and the longest terms, sometimes by consolidating the tax debt into a broader facility (for sole traders, this can intersect with your home loan – see our debt consolidation guide and the self-employed home loan guide). Unsecured tax debt loans exist and settle quickly, but they cost more and run shorter. Business assets – equipment, commercial premises – sit in between; our commercial property loans guide covers that path.
The exit. Good brokers structure a tax debt refinance with the next refinance in mind: clear the ATO now on the terms available, run clean lodgments and repayments for a period, then move the facility to sharper mainstream pricing once the file presents well. Treating the first loan as permanent is how businesses end up overpaying for years.
Client Example
Picture an electrical contracting business in Belmont, on Geelong’s southern side, with a solid order book and a tax debt that built up when a builder client collapsed owing it a six-figure sum. The owners kept lodging on time and went onto an ATO payment plan – but with GIC compounding daily, no longer deductible, and the debt large enough to sit near the credit-reporting threshold, the plan was absorbing the cash the business needed for materials on new jobs. Their broker’s work-up: refinance the ATO balance against equity in the couple’s investment property, structure the term so repayments fit the business’s cash flow cycle, pair it with a modest working capital facility for materials, and diarise a review to move the debt onto sharper terms after a clean year. The scenario is illustrative rather than a real client file and deliberately contains no rates, amounts or lender names – but it reflects the shape of the tax debt conversations we’re having in 2026: the debt is rarely the whole problem, and the refinance is rarely the whole answer.
Pro Tip
The quarterly BAS for July–September 2026 is generally due on 28 October (later if you lodge through a tax or BAS agent – confirm your date). If you already know that payment will hurt, the strongest position is to act before the due date: lodge on time regardless, talk to your accountant about the real size of the problem, and scope your refinance options while you’re still ahead of the ATO’s collection ladder. Every rung you slide down – defaulted plan, disclosed debt, DPN – removes lenders from the table and raises the price of the ones who remain. Lodging on time even when you can’t pay is the single cheapest piece of credit repair available to an Australian business.
Frequently Asked Questions
Can I get a business loan to pay out an ATO tax debt?
Yes. A number of Australian lenders – from banks to specialist and private funders – offer facilities that pay out the ATO directly, secured against property or business assets, or unsecured for smaller amounts at a higher cost. Approval turns on your lodgments being up to date, a credible explanation of how the debt arose, and the business’s capacity to service the new loan. The wider your security options, the better the terms tend to be.
Is it better to stay on an ATO payment plan or refinance?
It depends on the size of the debt, how quickly you can clear it, and what security you have. A payment plan suits a small debt you’ll clear within months. For larger or longer debts, the maths has shifted since 1 July 2025: GIC is over 11%, compounds daily and is no longer deductible, while interest on a business loan used to refinance it is generally deductible – so a secured refinance can now work out significantly cheaper. Run the comparison with your accountant and broker on your actual numbers.
Does the ATO really report tax debts to credit agencies?
It can. Broadly, a business tax debt of $100,000 or more that is overdue can be disclosed to credit reporting bureaus where the business isn’t effectively engaging with the ATO about it – engaging, for example through a payment plan, is what keeps the debt off your file. The precise criteria are set by the ATO and worth confirming directly. Once disclosed, the debt is visible to suppliers, credit insurers and lenders, which is why acting before that point matters so much.
Will a tax debt stop me refinancing my home loan?
Not necessarily, but it changes the approach. For self-employed borrowers, lenders will usually ask about tax portal balances during assessment, and an unmanaged debt can hurt the application. Some lenders will allow a refinance that consolidates the tax debt using home equity; others prefer the debt cleared or on a formal plan first. Which lenders suit depends on your income evidence and equity position – this is bread-and-butter work for a broker who handles self-employed lending.
Carrying a Tax Debt Into the October BAS?
Whether the right answer is a payment plan, a secured refinance or a broader restructure of your business lending, we’ll run the comparison on your actual numbers – alongside your accountant, before the ATO’s ladder starts moving. Based near Geelong, working with business owners Australia-wide by phone and video. No obligation.
Melanie McNaughton
Director & Senior Finance BrokerWith years of experience in mortgage broking and finance, Melanie helps first home buyers, refinancers, investors and business owners across Geelong, the Bellarine, the Surf Coast, Melbourne and regional Victoria make their money work harder. Contact our team on 03 9020 2699.