Can I get a business loan with an ATO debt?

Is owing the ATO a deal-breaker?

No. It’s one of the most common situations Mr hears about, and plenty of businesses with tax debt borrow successfully. A tax debt tells a lender the business had a cash squeeze. What tells the lender how risky that squeeze is comes down to three things: whether your paperwork is up to date, whether the debt is being managed, and whether the business can carry new repayments.

Why does lodgement matter more than the debt?

Because an unlodged BAS is a hole in the picture. Until it’s lodged, nobody — not you, not the lender, not the ATO — knows exactly what’s owed or what the business turned over. Lenders can price and plan around a known debt. They can’t around an unknown one.

So Mr’s first instruction is always the same: get everything lodged, even if you can’t pay. Lodging and paying are separate. Lodging on time also keeps more options open if a director penalty notice ever arrives — once PAYG withholding or GST goes unreported for more than three months past the due date, the ATO’s director penalty rules tighten considerably. See what to do about a director penalty notice.

What does “managing the debt” look like?

Any of these tells a lender you’re dealing with it:

• A payment plan with the ATO that’s being kept. For tax debts up to $200,000, the ATO indicates many businesses can arrange this themselves online.
• A clear plan to clear it with the loan, often with the lender paying the ATO directly at settlement.
• Correspondence with the ATO showing you’ve engaged — a conversation, a request, an arrangement in progress.

Engaging matters for another reason too. One of the conditions for the ATO passing a business tax debt to the credit bureaus is that the business is not engaging with it; the others are an ABN and $100,000 or more left unpaid past the 90-day mark. Engaging keeps that off your file.

Why do owners borrow to clear tax debt?

Reason	Why it matters
Stop the interest	The ATO’s general interest charge compounds daily on overdue amounts
Tax deductibility	GIC incurred on or after 1 July 2025 can’t be claimed as a deduction
Director exposure	Clearing PAYG, GST or super debts removes personal penalty risk
Credit reporting	Avoids a large unmanaged debt being reported
Certainty	One loan with a known end date instead of ATO pressure

That deductibility change is worth pausing on. Before 1 July 2025, owners could claim the ATO’s interest charge as a deduction. Now, any GIC incurred from that date can’t be claimed, even on older debts. Interest on a business loan used to pay a business tax debt is generally treated differently — talk to your accountant, and read our guide on ATO interest no longer being deductible.

Payment plan or loan — which is better?

Neither always wins. A plan avoids new debt but keeps GIC running and requires the ATO to accept your instalments. A loan stops GIC and gives certainty but adds a repayment and loan costs. We’ve laid out the comparison on ATO payment plan or business loan.

Which loans suit tax debt?

• Property-secured loans, $20k to $5m — the most flexible option for larger debts, because equity offsets the risk the tax debt represents.
• Caveat loans — for urgent situations with a clear exit, such as a property sale or refinance coming. See what a caveat loan is.
• Unsecured loans, typically $5k to $500k — possible for smaller debts when trading is steady and lodgements are current.

An illustrative example. A Townsville freight business owes $230k in GST and PAYG withholding after losing a major customer. BAS is lodged; there’s no plan yet. The directors own a home with good equity. A property-secured loan pays the ATO directly at settlement, the interest charge stops, and the business repays one loan over several years from improved trading.

What will the lender ask about the debt?

Have short, factual answers ready:

1. How much is owed, and for what? GST, PAYG withholding, income tax, super guarantee charge — each reads differently, and some carry director penalty risk.
2. Which periods? One bad quarter or two years of build-up?
3. Is everything lodged? If not, when will it be?
4. Is there a plan, and is it being kept? Include the instalment amount and how many remain.
5. Has the ATO issued any notices? Director penalty notices, garnishee notices or warnings of credit reporting all change the urgency.
6. What caused it, and what’s changed? A lost customer, a growth spurt, a health issue — and what’s different now.

Your ATO statement of account answers most of these in one document. Download it before you enquire.

Will the lender pay the ATO directly?

Very often, yes. When the loan’s purpose is clearing tax debt, lenders commonly pay the ATO at settlement rather than paying the money to you. That gives the lender certainty the debt is gone and gives you a clean ATO account straight away. Ask for confirmation from the ATO afterwards and keep it on file — the next lender will want to see it.

Owe the ATO and want a way through?

Tell Mr in about 60 seconds: how much is owed, for which periods, whether everything’s lodged and whether there’s any property. There’s no credit check to enquire, your details aren’t shopped around a list of lenders, and a real person will tell you plainly whether a plan, a loan or both makes more sense. Accurate tax details on the form matter — they decide which lenders will look at it. See if you qualify.