Mr says
An ATO payment plan suits a smaller, short-lived debt you can clear in instalments the ATO will accept, without taking on new borrowing. A business loan suits a larger debt, a director penalty risk, a plan that's been refused or defaulted, or when you want the interest charge stopped and one clear end date. Since 1 July 2025 the ATO's interest charge isn't deductible, which shifts the comparison for many owners.
Key points
- Plans avoid new debt but keep the general interest charge running.
- GIC compounds daily and isn't deductible from 1 July 2025.
- A loan can clear director penalty exposure and give certainty.
- Compare total cost in dollars, not just the monthly figure.
Why isn’t one always better?
Because they solve the same problem in different ways. A payment plan says to the ATO, “I’ll pay you over time.” A loan says, “Someone else pays you now, and I’ll pay them over time.” Which is better depends on the size of the debt, how long you need, what each costs and what’s at stake if things slip.
How do they compare?
| ATO payment plan | Business loan | |
|---|---|---|
| New debt | No | Yes |
| Interest | GIC keeps accruing, compounding daily | Loan interest and fees |
| Deductibility | GIC incurred from 1 July 2025 not deductible | Interest on business borrowing generally deductible |
| Set-up | Online if you owe $200,000 or less (may be available) | Application, documents, sometimes security |
| Flexibility | ATO decides acceptable instalments | You and the lender agree terms |
| If you slip | Plan can be cancelled; firmer ATO action | Lender’s default process |
| Director penalty exposure | Debt remains while plan runs | Can be cleared at settlement |
| Credit reporting risk | Engaging with ATO keeps it off | Debt cleared, so not applicable |
When does a payment plan make sense?
- The debt is modest and you can clear it in a short period.
- The instalments the ATO accepts fit your cash flow comfortably.
- You’d rather not add a lender, security or guarantees to the picture.
- Your BAS and returns are lodged and you’re confident of keeping up.
A kept plan also counts as engaging with the ATO, which matters: the ATO’s power to tell credit bureaus about a business tax debt only applies, among other conditions, when the business isn’t engaging with it — and only once $100,000 or more has been outstanding beyond 90 days.
When does a loan make more sense?
- The debt is large or would take a long time to clear under a plan.
- The ATO won’t accept the instalments you can afford, or a plan has been refused.
- A plan has defaulted and the ATO is escalating.
- A director penalty notice has arrived or is likely — see what to do about a DPN.
- You want the interest charge stopped. GIC is calculated on a daily compounding basis on the amount overdue, and since 1 July 2025 it can’t be claimed as a deduction.
- You want certainty: one lender, one schedule, one end date.
How do I compare the cost properly?
Put both options in dollars over the same period:
- Plan: total instalments + estimated GIC over the plan’s life. Remember GIC isn’t deductible now, so its after-tax cost is the full amount.
- Loan: total repayments + every fee (establishment, legal, valuation, discharge). Interest on business borrowing is generally deductible — ask your accountant what that’s worth to you.
- Risk: what happens under each option if a customer pays late and you miss a month?
The full list of loan costs helps you fill in the loan side honestly, and our guide on ATO interest no longer being deductible covers the plan side.
Can I use both?
Yes. A common path: start a payment plan to show engagement and stop escalation, then refinance the remaining balance with a loan once documents are ready. Or borrow for the oldest, largest debt and keep a small plan for the rest. Lenders often view a kept plan positively.
An illustrative example. A Bendigo builder owes $310k across GST, PAYG withholding and income tax. Online plans aren’t available above $200,000, and the instalments the ATO proposes would strain cash flow. A property-secured loan over the directors’ investment property clears the ATO at settlement, stops the interest charge and removes director penalty exposure. Repayments are set over a term the business can carry.
What should I do first?
- Lodge everything outstanding.
- Get your ATO statement of account.
- Work out the instalment you could genuinely afford.
- Ask your accountant about deductibility and director exposure.
- Get a loan option on the table to compare — before the plan is your only choice.
More detail on how lenders view tax debt is on business loans with an ATO debt.
What does the ATO consider when setting up a plan?
For plans set up directly rather than online, expect the ATO to ask about your business’s financial position: income and expenses, other debts, assets and what you can genuinely afford. It will want lodgements up to date. Having that information ready — a recent profit and loss, cash flow forecast and list of debts — speeds things up and makes it easier to propose instalments that are realistic rather than optimistic.
A plan you can’t keep is worse than no plan, because a defaulted plan can lead to firmer action and makes the next arrangement harder. Propose an amount you’re confident of, with a little room.
What do lenders think of businesses on payment plans?
Mostly, that they’re dealing with it. A payment plan that’s been kept for several months is often a positive sign on an application — it shows discipline and engagement. Some lenders will refinance the remaining balance; others are happy to lend for another purpose while the plan continues, as long as the repayments fit alongside it. What concerns lenders is a plan that’s been set up and defaulted, or several plans in quick succession.
Weighing a plan against a loan?
Get the loan side of the comparison from a real person. Ask Mr in about 60 seconds — the debt amount, whether you’re on a plan and any property you own. There’s no credit check to enquire, your details aren’t sprayed around a list of lenders, and a specialist will tell you straight whether borrowing beats the plan for your numbers. Accurate ATO figures make that comparison worth having. See if you qualify.
Frequently asked questions
Can I set up an ATO payment plan myself?
Often, yes. Where the total owed is $200,000 or under, the ATO's online services may let you put a plan in place yourself — though only one plan at a time can be set up online. Larger debts need to go through the ATO directly.
What happens if I miss a payment plan instalment?
The plan can be cancelled and the ATO may take firmer collection action. If you're struggling to keep a plan, talk to the ATO early and consider whether refinancing the debt makes more sense.
Does a payment plan stop ATO interest?
No. General interest charge usually keeps accruing on the outstanding balance while you're on a plan.
Will a lender consider me if I'm already on a plan?
Often. A plan that's being kept is a positive sign to lenders, and some owners later refinance the remaining balance with a loan.