ATO debt: three ways forward

First, a reality check: you’re not alone

Tax debt is one of the most common money problems Australian small businesses face. It usually doesn’t come from recklessness. It comes from timing: GST collected in a good quarter gets spent before the BAS is due; PAYG withheld from wages helps cover a supplier; a slow season lands right on a lodgement date.

The important thing is what you do next. Tax debt left alone gets more expensive and more serious. Tax debt dealt with early is usually very manageable. This guide walks through the three main ways forward, and the facts that make the timing matter.

Why does acting early matter more than it used to?

Three things the ATO has made clear raise the stakes of waiting.

Interest is no longer tax-deductible

The ATO’s article take control before interest on ATO debt costs you more explains that you can no longer claim a tax deduction for general interest charge incurred in income years starting on or after 1 July 2025. GIC also compounds daily. In plain terms, carrying a tax debt now costs more in real terms than it used to.

Larger debts can show up on credit files

Once every one of its criteria is met, the ATO is able to report a business’s tax debt to the credit bureaus. Those include that the business has an ABN, owes $100,000 or more that has been outstanding for over 90 days, and hasn’t made workable arrangements with the ATO for repaying it. The ATO says it won’t report debts where the business is effectively engaging, such as by keeping to a compliant payment plan.

A reported debt can make other lenders, suppliers and landlords more cautious, so staying engaged with the ATO matters even if you can’t pay in full.

Directors can become personally liable

Under the director penalty regime, directors can become personally liable for amounts the company hasn’t paid — PAYG withholding, GST and the super guarantee charge. If a director penalty notice arrives, the ATO says directors have 21 days from when it’s posted or left at their ASIC-registered address to take one of the options it describes.

Fact	Why it matters
GIC not deductible from 1 July 2025 income years	Debt costs more to carry
Debts of $100,000+ overdue 90+ days may be reported	Credit file and reputation risk
Director penalties cover PAYGW, GST and SGC	Personal liability for directors
21 days after a director penalty notice	Hard deadline to act

Way 1: an ATO payment plan

The ATO’s own option is often the first to consider. According to the ATO, a business debt of $200,000 or less can often go onto a plan using the ATO’s online services. Larger debts usually need a conversation with the ATO.

When a payment plan works well

• The debt is a size you can clear in a reasonable time
• Your income can cover the instalments and your future tax as it falls due
• You’re confident you’ll keep to the plan

Watch-outs

• Interest keeps running on the unpaid balance, and as noted it’s no longer deductible for recent periods.
• New debts can derail a plan. If the next BAS isn’t paid on time, the arrangement may be at risk.
• Instalments may be higher than you’d like. If they squeeze cash flow, the plan may not be sustainable.

A plan you can genuinely keep is a legitimate, sensible solution, and keeping to it counts as engaging with the ATO.

Way 2: refinance the debt with a business loan

Sometimes a payment plan isn’t the best fit. A loan can make more sense when:

• The debt is larger than a plan can comfortably handle
• A previous plan has failed, or the ATO’s instalments are too high
• A deadline is running, such as a director penalty notice
• You want one structured repayment, rather than several tax debts each accruing GIC

Which kind of loan?

Situation	Often suits
Smaller debt, trading business with steady statements	Unsecured or cash flow loan, typically $5k – $500k
Larger debt, own property	Second mortgage, $20k – $5m
Urgent, short-term need with a clear exit	Caveat loan
Several debts to consolidate	Property-secured refinance

ATO debt is considered case by case. Property security usually widens the options, especially if the tax debt has already affected the business’s credit profile. Our tax debt business loans page goes into each option in more detail.

Want to compare a payment plan with a loan for your numbers? Send a 60-second enquiry. A specialist will call, and asking doesn’t involve a credit check.

Make sure the loan solves the problem

A loan replaces the ATO debt with a different debt. It’s worth doing when it gives you a structure you can sustain: a repayment that fits your quietest month, a term that matches your recovery, and one clear obligation instead of several. It’s not worth doing if it simply delays the problem.

Way 3: get advice about restructuring

Sometimes neither a plan nor a loan fits, because the business can’t support the repayments. That’s a hard thing to face, but facing it early gives you the most options.

Business.gov.au’s financial trouble hub links to resources on warning signs, managing debt and reviewing your financial health. Your accountant is the right first call. Depending on the situation, a registered professional may discuss formal options, which we don’t advise on.

A responsible finance specialist will tell you honestly if they think borrowing would make things worse. That honesty is part of the service.

A three-step action plan for this week

Whichever way you’re leaning, these steps help:

1. Get the full picture. Log in to ATO online services or ask your accountant for a list of every tax debt: BAS, PAYG withholding, super guarantee charge, income tax. Note any notices and their dates.
2. Lodge everything that’s due. Even if you can’t pay, lodging on time keeps the ATO informed and keeps options open.
3. Pick your way forward and act. Set up a payment plan, start a finance conversation or book in with your accountant, this week rather than next month.

How do I stop it happening again?

Once the debt is under control, prevention is simple, if not always easy:

• Separate tax account. Business.gov.au recommends setting money aside in a separate account to pay what you owe on time, including tax and employee costs.
• Weekly transfers. Move a set percentage of deposits into that account automatically.
• Know your dates. Quarterly BAS is generally due 28 October, 28 February, 28 April and 28 July. Our BAS time cash flow page has a simple planner.
• Payday Super. Since 1 July 2026, super leaves with each pay run, so build it into every payroll rather than leaving it to the quarter.

Illustrative example only. A company running a plumbing business owes the ATO for three quarters of BAS. The directors haven’t received a penalty notice yet but know the debt is growing. Their accountant lists everything owed. A payment plan would require instalments that clash with the next two BAS payments, so they look at a loan secured over one director’s home. It clears the ATO debt in full, replaces it with a single monthly repayment, and the business sets up a weekly transfer into a new tax account the same week.

Let’s find your way forward

Tax debt feels heavy, but you have more options when you act early. Whether the answer is a payment plan, a loan or advice, the first step is the same: get the facts and talk to someone.

When you enquire, nothing touches your credit file. A real person reads your situation and phones you; we won’t pass your details down a long line of lenders. Please be open and accurate on the form about the size of the debt, any notices and whether you own property, so the first call can focus on the way forward that genuinely fits. Talk to us about your tax debt.