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The ATO has stepped up enforcement and interest on tax debt is no longer deductible. Payment plans, business finance and acting early can keep more options open.
Businesses with ATO debt usually have three main paths: an ATO payment plan, refinancing the debt with a business loan or line of credit, or restructuring with professional help. Interest on tax debt is no longer deductible and the ATO has stepped up enforcement, so acting before a director penalty notice or garnishee keeps the most options open.
The post-pandemic leniency that many businesses had come to rely on with the ATO is firmly over. Total collectable tax debt across the small business sector now sits well above $50 billion, and the ATO has stepped up enforcement activity, issuing nearly 85,000 director penalty notices in 2024–25 alone.
From 1 July 2025, interest charges on business tax debt were also deemed non-deductible by the ATO, increasing the real cost of carrying that debt. For businesses that have been using overdue tax obligations as an informal cash flow facility, the environment has shifted considerably.
The good news is that businesses in this position have more options than many realise, and acting early can make a significant difference.
ATO payment plans are a starting point, not a solution
The ATO does offer payment plans, and for businesses with manageable debt levels and strong ongoing cash flow, these can provide breathing room. However, interest continues to accrue on the outstanding balance, and ATO payment plans sit alongside your existing financial obligations rather than replacing them.
For businesses already stretched, a payment plan alone may not be enough to stabilise the position. The ATO also expects you to keep up with new lodgements and payments while you repay the old debt, which means your business has to fund both at once.
Business finance can be used to clear tax debt
One option available to eligible businesses is using a business loan or line of credit to pay out the ATO debt and consolidate it into a single commercial facility. This converts the tax debt into a structured business loan with defined repayment terms, removes the ATO as an active creditor, and can reduce the overall interest cost depending on the rate secured.
For lenders, a business carrying ATO debt is a more complex application than one without. The business needs to demonstrate viable ongoing trading, and the purpose of the loan will be scrutinised. This is an area where working with a finance broker who understands business lending can make a meaningful difference to both the outcome and the speed of the process.
| ATO payment plan | Business loan or line of credit | |
|---|---|---|
| Who you owe | The ATO | A lender |
| Interest | General interest charge, not deductible from 1 July 2025 | Lender’s rate, which may be lower depending on the facility |
| Repayment terms | Agreed with the ATO | Defined loan term and repayments |
| Enforcement risk | ATO remains an active creditor | ATO debt cleared once paid out |
| Approval | Depends on ATO assessment and compliance history | Depends on lender assessment, trading history and security |
Lenders typically look for up-to-date tax lodgements, recent financial statements, business bank statements and a clear picture of how the business will meet repayments. Some lenders consider unsecured facilities for smaller amounts, while others require property or other security. A low doc option may suit some self-employed borrowers, as covered in our article on the advantages of a low doc business loan.
Acting early keeps more options open
The further a tax debt increases, the fewer the options available to resolve it. Once the ATO issues a director penalty notice, directors become personally liable for certain obligations, including PAYG withholding, GST and superannuation.
Garnishee notices, court recovery action, and, in serious cases, departure prohibition orders are all tools the ATO is actively using. A garnishee notice lets the ATO collect money directly from your bank account or from customers who owe you money, which can take cash out of the business without warning.
Businesses that engage early, before enforcement escalates, are in a much stronger position to negotiate, refinance or restructure. Waiting until the pressure becomes acute narrows what is available.
| Stage | What it means for the business |
|---|---|
| Overdue debt and reminders | Most options open, including payment plans and refinancing |
| Payment plan default | ATO may cancel the plan and escalate |
| Director penalty notice | Directors may become personally liable for PAYG withholding, GST and super |
| Garnishee notice | ATO can collect directly from bank accounts or debtors |
| Court recovery or departure prohibition order | Serious legal action and travel restrictions in some cases |
Preventing tax debt from building again
Clearing the debt solves today’s problem. Keeping it from coming back means setting aside GST, PAYG withholding and super as you go, ideally in a separate account. From 1 July 2026, Payday Super requires super to be paid with wages, which changes the timing of that obligation. Our guide on how to strengthen your business cash flow before the new financial year covers the planning side, and cash flow mistakes growing businesses make explains where shortfalls start.
How a finance broker can help
A finance broker with experience in business lending can help compare your options across a range of business loan and cash flow finance products and structure an application that presents the business in the strongest possible light. A business line of credit can also help smooth tax payments in future. Our tips for getting a business loan explain what lenders look for.
If your business is carrying ATO debt, speaking to a finance broker early is a good first step. Attain Loans is a business finance broker in Melbourne’s west, and any facility is subject to the lender’s assessment.
This article is general in nature and does not constitute tax advice. It doesn’t take into account your objectives, financial situation or needs. Please consult a qualified accountant or tax adviser regarding your specific circumstances.
Further questions
Can I get a business loan to pay off ATO debt?
Does interest keep accruing on an ATO payment plan?
What is a director penalty notice?
How do I set up an ATO payment plan?
What happens if I ignore ATO debt?
This is general information only and is subject to change at any given time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.
