In a nutshell
A tax debt loan is business finance used to pay an ATO debt — GST, PAYG withholding, income tax or super guarantee charge — in full or in part. It can be secured against property, often through a caveat or second mortgage for speed, or unsecured and sized on turnover. Owners use it to stop the general interest charge accruing, protect directors from penalty exposure, or replace a payment plan they can't sustain.
Key points
- Finance can clear ATO debt in one payment instead of an ongoing payment plan.
- GIC incurred on or after 1 July 2025 is no longer tax deductible.
- Director penalties can make directors personally liable for PAYG withholding, GST and SGC.
- Property-secured options suit larger debts; unsecured suits smaller ones.
- Covers
- GST, PAYG, income tax, SGC
- Secured options
- Caveat, 2nd mortgage
- GIC deductible?
- Not from 1 July 2025
- ATO debt
- Considered case by case
Tax debt is one of the most common reasons Australian businesses borrow, and one of the least discussed. It usually builds quietly — a BAS paid late, a quarter skipped to cover wages — until the ATO’s letters change tone. This entry explains how finance can clear it, how that compares with the ATO’s own options, and what’s at stake for directors.
Why would a business borrow to pay the ATO?
The ATO offers payment plans, so borrowing isn’t the only route. Owners choose finance when:
- The interest charge adds up. The general interest charge compounds daily on unpaid tax, including debts on a payment plan. And GIC incurred on or after 1 July 2025 is no longer tax deductible, which changed the maths for many businesses.
- Directors are exposed. Under the director penalty regime, directors can become personally liable for unpaid PAYG withholding, GST and super guarantee charge.
- The plan isn’t sustainable. Instalments set on a payment plan may be more than the business can carry alongside current tax.
- Suppliers and lenders are watching. Unmanaged tax debt can affect credit reporting, trading terms and future finance.
- They want one clear commercial obligation on known terms instead of an open-ended ATO arrangement.
How does director penalty exposure work?
According to the ATO, director penalties apply to three types of company liability: PAYG withholding, GST and super guarantee charge. What a director can do after receiving a notice depends on reporting:
| If the liability was… | Within 21 days of the notice, the penalty can be remitted by… |
|---|---|
| Reported within 3 months of the due date | Paying in full, appointing an administrator, appointing a small business restructuring practitioner, or beginning to wind up |
| Reported late, or never reported | Paying the liability in full only |
Estimated liabilities are treated as never reported. Because the options narrow sharply when lodgements are late, lodging on time — even when you can’t pay — matters. Your accountant or adviser can confirm how it applies to you.
What finance options can clear tax debt?
| Option | Suits | Notes |
|---|---|---|
| Caveat loan | Urgent, property equity available | Fastest secured route; short term |
| Second mortgage | Larger debts, existing home loan to keep | Longer term than a caveat |
| Private first mortgage | Unencumbered property, larger debts | Strongest security position |
| Unsecured loan | Trading businesses, smaller debts | Sized on turnover; ATO debt considered case by case |
| Combination | Debt plus working capital | e.g. property loan for tax, line of credit for cash flow |
If you’re weighing a loan against a payment plan, you can have a specialist model the options — there’s no credit check to enquire.
What do lenders want to see?
- An ATO statement of account showing the debt and any arrangements.
- Lodgement status — outstanding BAS or returns should be lodged or scheduled.
- A short explanation of how the debt arose and what’s changed.
- For secured loans, property details; for unsecured, recent bank statements.
- A plan to stay current from here — lenders want to see the debt won’t rebuild.
Tax debt doesn’t rule you out. Past credit issues and ATO debt are considered case by case, and property security often makes the decision straightforward.
What should you do first?
- Lodge everything outstanding, even if you can’t pay yet.
- Get a current statement from the ATO so you know the exact figure.
- Talk to your accountant about a payment plan versus finance.
- Get finance quotes early — options are better before enforcement escalates.
- Plan for current obligations. Clearing old debt only helps if new BAS and super are paid on time. Payday Super, which began on 1 July 2026, requires super to reach funds within seven business days of payday.
Terms used in this entry
- GIC — the general interest charge the ATO applies to overdue tax, compounding daily. Glossary →
- DPN — a director penalty notice making a director personally liable for certain company tax debts. Glossary →
- Statement of account — the ATO’s record of what your business owes and has paid. Glossary →
- SGC — the super guarantee charge payable when super isn’t paid correctly or on time. Glossary →
Every term is defined in the business finance glossary, with links back to the full entries.
Worked example (illustrative)
Illustrative only. A hospitality group fell behind on BAS during a slow year and now owes the ATO a significant amount, including PAYG withholding. It has been on a payment plan but the instalments are squeezing wages. The directors are worried about personal exposure. One director owns a home with a moderate mortgage.
A second mortgage behind the home loan clears the full ATO balance in one payment, stopping further GIC and removing the director penalty exposure on that debt. The group’s accountant sets up a separate tax account to hold GST and PAYG from each week’s takings so the debt doesn’t rebuild.
Ready to put the ATO debt behind you?
We help business owners with tax debt all the time, and it doesn’t make us nervous. Tell us about it in about 60 seconds — there’s no credit check when you first enquire, and your details aren’t fired off to a list of lenders. A real person reviews your situation and calls you to talk through the options. Please give the approximate ATO balance, whether lodgements are up to date and any property you own, as accurately as you can.
Frequently asked questions
Is it better to take a loan or set up an ATO payment plan?
It depends on the size of the debt, your cash flow and the ATO's position. A payment plan keeps the debt with the ATO, and the ATO notes that debts on a plan continue to accrue GIC, compounding daily. A loan replaces the ATO debt with a commercial one on known terms. Many owners discuss both with their accountant.
Is the general interest charge still tax deductible?
No, not for GIC or shortfall interest charge incurred on or after 1 July 2025. The ATO confirms the change is law. Interest on a business loan used for business purposes is generally deductible, but confirm your position with your accountant.
What is a director penalty notice?
An ATO notice that makes a director personally liable for the company's unpaid PAYG withholding, GST or super guarantee charge. If amounts were reported within three months of the due date, several options can remit the penalty within 21 days; if not, it can generally only be remitted by paying the debt in full.
Can I get a tax debt loan if the ATO has already taken action?
Often, yes. Lenders see businesses with garnishee notices, DPNs or default notices regularly. Speed and the right security become more important.
Do I need property for a tax debt loan?
Not always. Trading businesses may qualify for unsecured funding sized on turnover. Larger debts are usually easier to clear with property security.