Tax & Cash Flow

Clearing ATO Debt Without Killing Your Cash Flow

By Jonmarco Sanchez, Director, OzCap Finance · Authorised Credit Representative 565450 of AFAS Group Pty Ltd (ACL 414426) · MFAA member
Published 22 August 2026 · Last reviewed 20 September 2026

Since 1 July 2025, interest the ATO charges on unpaid tax, being the general interest charge (GIC) and the shortfall interest charge (SIC), is no longer tax deductible. Not partly, not for new debt only: none of it, and that applies even to interest on a tax debt from years before the change, if the charge itself lands on or after 1 July 2025. The charge compounds daily and the ATO resets the rate every quarter, so the current rate and what it is costing you both sit in the ATO debt calculator. That's the number quietly getting more expensive for every business carrying old ATO debt, whether anyone told them or not.

Is it worth financing an ATO debt?

Structured finance to clear an ATO debt gives you one predictable repayment instead of an open-ended, non-deductible interest charge sitting over the business. You know what it costs and you know when it ends.

The comparison worth running is a simple one. Put the ATO's current charge, non-deductible and compounding daily, next to what a business facility would cost you, where the interest is often deductible again because it's business finance rather than a tax charge. Restructuring doesn't always mean less interest overall, especially once you spread it over a longer term. What it reliably means is a repayment that doesn't crush the business, using a facility where the interest may actually be doing something for you at tax time instead of nothing.

There's a second benefit that doesn't show up in the arithmetic. ATO debt on the books limits what else you can do. It surfaces in tax portal checks, it can affect your ability to get other finance, and in some circumstances it can be disclosed to credit reporting bureaus. Clearing it restores your capacity to borrow for things that actually earn.

What do lenders want to see when you finance an ATO debt?

A clear picture of the debt (how much, how old, and whether there's a payment plan running), plus your trading history and your current banking conduct.

It doesn't need to be a spotless file. What a lender is testing is whether the business is viable and whether the debt is being dealt with rather than ignored. A business with a sizeable ATO balance and a clear plan reads far better than one with a smaller balance and no explanation for it.

Two things do genuine damage. Overdue lodgements are the first: if your BAS returns aren't lodged, get them lodged even if you can't pay them, because an unlodged return means nobody, including you, knows the real number. The second is a broken ATO arrangement. If you've defaulted on a payment plan, expect to explain what changed and what's different now.

What does financing an ATO debt look like?

There isn't a single product called ATO debt finance. What we're usually arranging is a business facility, and you use it to clear the balance.

For smaller debts against a clean trading history, an unsecured business loan over a short term is often the simplest route. For larger balances, or where you own unencumbered equipment or business property, a secured business loan brings the rate down considerably and can stretch the term out to five years or more, well past what a standard ATO payment plan allows. Where the debt is really a timing issue caused by slow-paying customers, invoice or trade finance may fix the cause rather than just the symptom.

Occasionally the right answer is none of the above. If you already have an ATO payment plan priced below what finance would cost, and you're meeting it comfortably, leaving it alone is the sensible call. Worth checking before you refinance something that's already working.

Is interest on an ATO debt tax deductible?

Before 1 July 2025, GIC and SIC were tax deductible, which softened the real cost of leaving a debt to sit. That softening is gone. Every dollar of GIC accruing today is a dollar with no tax offset behind it, and because the change applies to the interest charge itself, not the year the underlying debt relates to, it doesn't matter if the debt is from 2022 or last month. If GIC lands on it after 1 July 2025, it's non-deductible.

Interest on a business facility used for a legitimate business purpose, including clearing a tax debt, is frequently still tax deductible. That's the whole mechanism behind restructuring: not a loophole, just moving the debt from a bucket that stopped getting a tax benefit into one that generally still gets one. Confirm the specifics with your accountant, because how it lands depends on your structure.

Does an ATO debt get more expensive the longer you leave it?

ATO general interest charges compound the longer a debt sits, daily, at whatever the current published rate is. The more of it that accrues, the more of each repayment goes to interest rather than to the debt itself, and the bigger the number you eventually have to clear.

The other clock running is your own file. Lenders assess ATO debt very differently depending on how it's being handled. A business that comes to finance early, with returns lodged and a plan in place, has real options. A business that waits until the ATO has issued a director penalty notice or started recovery action has very few, and none of them are cheap.

If the balance is already on your mind, it's worth a conversation. Bring your latest portal balance and your last couple of BAS lodgements, and we can tell you fairly quickly whether financing it stacks up or whether you're better off leaving it where it is.

Common questions

Is interest on an ATO debt tax deductible?

Not the ATO's own charges. GIC and SIC that land on or after 1 July 2025 are not deductible, even if the debt relates to an earlier year. Interest on a business facility used for a legitimate business purpose, including clearing a tax debt, is frequently still deductible. Confirm the specifics with your accountant.

Can you finance an ATO debt?

There isn't a single product called ATO debt finance. We usually arrange a business facility, such as an unsecured or secured business loan, and you use it to clear the balance. Which one suits depends on the size of the debt, your trading history and any security you can offer.

What do lenders look at when there is an ATO debt?

A clear picture of the debt (how much, how old, and whether a payment plan is running), plus your trading history and banking conduct. Get overdue BAS lodged first, and be ready to explain a broken payment arrangement. The file doesn't need to be spotless.

Is it ever better to leave an ATO payment plan alone?

Sometimes, yes. If you already have an ATO payment plan priced below what finance would cost, and you're meeting it comfortably, leaving it alone is the sensible call. It's worth checking before you refinance something that is already working.

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