If your business is carrying a tax debt, you have broadly two ways to deal with it: arrange a payment plan with the ATO, or borrow to pay it out and repay a lender instead. Until recently the choice came down to convenience and cash flow. A change to the tax law has made it a more interesting question.
What changed on 1 July 2025
The ATO charges general interest charge on tax that is unpaid after its due date, and shortfall interest charge where an amended assessment finds you underpaid. Both accrue and compound daily at rates the ATO sets and updates quarterly.
Historically both were tax deductible, which softened the cost of carrying a tax debt.
That is no longer the case. Under the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, which received Royal Assent on 27 March 2025, GIC and SIC incurred on or after 1 July 2025 are not deductible. Two details matter:
- It applies regardless of which income year the underlying debt relates to. An old debt still attracting interest today produces a non-deductible charge.
- It is the date the interest is incurred that counts, not when it is paid.
Charges incurred before 1 July 2025 remain deductible for the 2024-25 and earlier income years. And because the charges are no longer deductible, any GIC or SIC incurred after the change that the ATO later remits no longer needs to be included as assessable income.
Why that matters to the decision
The practical effect is that carrying a tax debt costs a business more after tax than it used to, even though the ATO's rate itself has not changed because of this law.
Meanwhile, interest on borrowings is deductible under the ordinary rules where the borrowing is connected to producing your business income. So refinancing a tax debt into a business facility can change the after-tax position, because you replace a charge you cannot deduct with interest you generally can.
Two honest qualifications. It depends on purpose and structure, not simply on the loan being labelled a business loan, and the connection to your income-producing activity is what matters. And it is not automatically cheaper. Whether a loan beats the ATO's arrangement depends on the rates available to you at the time, the term, any fees, and your circumstances. That comparison is worth running properly with your accountant rather than assumed in either direction.
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When an ATO payment plan is still the right answer
The debt is small and the plan is short. Interest accrues either way, and over a short period the difference is unlikely to justify arranging finance.
You can clear it quickly. The ATO itself makes the point that a payment plan should run over the shortest timeframe you can manage, because that reduces the interest charged.
You cannot service a loan. If the repayments would not fit, a loan is not the answer and it is better to engage with the ATO than to fall behind on both.
You have no capacity to borrow. The ATO arrangement exists precisely because businesses go through hard periods.
When refinancing tends to suit better
The debt is substantial and the timeframe long. The longer the debt runs, the more the deductibility difference compounds against you.
You want certainty. A loan has a fixed term and a fixed repayment. Interest on an outstanding tax balance keeps accruing daily until the balance is cleared.
The tax debt is affecting your borrowing. Lenders ask about ATO debt. An unmanaged one restricts what you can access, and it can also be disclosed by the ATO to credit reporting bureaus where the debt is significant, long overdue and the business is not effectively engaging with them. Clearing it can improve your position for finance you need later.
You have equipment or vehicles in the business. Sometimes the cleanest route is not an unsecured loan at all, but releasing capital against assets you already own, or restructuring existing finance. Our equipment finance and business loans pages cover what we arrange, and where financials are not current, low doc options are assessed on bank statements, BAS or an accountant's declaration.
What lenders look at
- Time trading, ABN and GST registration
- Serviceability, from financials, BAS or bank statements
- The size and age of the tax debt, and whether lodgements are up to date. Being up to date on lodgements matters more than people expect, even where payment is behind
- Credit history, with directors' guarantees standard on commercial lending
- Any assets available as security, which usually improves the options
Lodgement is worth emphasising. A business that has lodged everything and simply cannot pay yet presents very differently from one that has stopped lodging.
The order to do things in
- Get the numbers from your accountant: the debt, the interest accruing, and what it costs you after tax now that the charges are not deductible.
- Get an indicative loan structure and cost to compare against it, over a term you can service.
- Compare like with like, total cost over the same period rather than one monthly figure against another.
- Decide, then act promptly, because interest continues to accrue while the decision sits.
Where a broker fits
The work is establishing whether refinancing genuinely leaves you better off once the tax treatment is accounted for, and which structure suits, secured against existing assets or unsecured. If the answer is that the ATO plan is fine for your situation, that is worth hearing too. Our business loans page sets out what we arrange, Australia-wide.
This article is general information only and is not tax, legal or financial advice. Tax law changes and its application depends on your circumstances; confirm your position with your accountant or registered tax agent. If your business is in financial difficulty, the ATO has support options and free financial counselling is available.
Damo Treadgold is the director of Treadgold Finance, an FBAA-accredited finance broker on the Sunshine Coast, arranging equipment, vehicle and business finance Australia-wide.
Frequently Asked Questions
Is ATO interest still tax deductible?
No. Under changes that took effect from 1 July 2025, general interest charge and shortfall interest charge incurred on or after that date are not deductible, regardless of which income year the underlying debt relates to. Charges incurred before that date remain deductible for the 2024-25 and earlier income years.
Does that mean I should refinance my tax debt into a business loan?
Not automatically. Interest on borrowings is generally deductible where the borrowing is connected to producing business income, so refinancing can change the after-tax position. Whether it is actually cheaper depends on the rates available to you, the term and your circumstances. Run the comparison with your accountant.
When is an ATO payment plan still the better option?
When the debt is small, the plan is short, or you could not service a loan. The ATO advises keeping any payment plan as short as you can manage, because interest continues to accrue.
Does a tax debt affect my ability to get finance?
Yes. Lenders ask about it, and an unmanaged tax debt restricts what you can access. The ATO can also disclose business tax debts to credit reporting bureaus where the debt is significant, long overdue and the business is not effectively engaging.
What if I have not lodged my returns or BAS?
Being up to date on lodgements matters more than people expect. A business that has lodged and cannot yet pay presents very differently to a lender than one that has stopped lodging.
Can I use my equipment or vehicles to clear a tax debt?
Sometimes. Releasing capital against assets you already own, or restructuring existing finance, can be a cleaner route than unsecured borrowing. It depends on the assets and what is owing on them.
