Managing ATO Debt: Your Options Explained

ATO debt includes unpaid GST, PAYG withholding, PAYG instalments, income tax, superannuation guarantee charges, and penalties. The ATO charges General Interest Charge (GIC) on unpaid amounts, currently 11.36% p.a. From 1 July 2025, GIC and Shortfall Interest Charge are no longer tax deductible for businesses. This makes managing ATO debt more costly than before.

The ATO offers payment plans for businesses struggling to pay. Self-service plans are available online for debts under $200,000 if you have a good compliance history. These can be interest-free for debts clearable within 12 months. Larger debts or those with compliance issues require negotiation with ATO officers. Plans can be monthly or by instalments aligned with income. Failure to meet plans can result in stricter enforcement.

Commercial finance may be more cost-effective than ATO payment plans. Property-secured loans offer rates of 6-8% p.a. versus ATO GIC of 11.36%. Invoice finance can accelerate cash flow to pay ATO debts. Asset refinancing releases equity from equipment or vehicles. Lines of credit provide flexible access to funds for tax payments. Consider total cost including tax deductibility of interest.

From 1 July 2025, General Interest Charge and Shortfall Interest Charge paid to the ATO are no longer tax deductible. This significantly increases the effective cost of ATO debt. Interest on commercial loans used to pay tax debt remains deductible in most circumstances. This change makes refinancing ATO debt more attractive for many businesses.

Commercial finance to pay ATO debt makes sense when the interest rate is lower than GIC (11.36%), when you need certainty of fixed repayments versus ATO enforcement risk, when preserving ATO relationship is important for future compliance, or when the debt is substantial and affecting business operations. Property owners can access secured rates significantly below GIC.

The ATO reports tax debt information to credit bureaus for debts over $100,000 that are at least 90 days overdue and where the business has not engaged with the ATO. This can affect your business credit rating and ability to obtain finance. Entering a payment plan or actively managing your ATO relationship prevents credit reporting.

If your business is experiencing genuine hardship, the ATO has provisions to assist. These include releasing penalties and interest in certain circumstances, pausing enforcement action during hardship, and providing extended time to pay without accumulating GIC. Contact the ATO early if you are struggling, as proactive engagement leads to better outcomes.