Tax Debt Loans: When Borrowing Beats an ATO Payment Plan

A tax debt loan can cost less than an ATO payment plan when the lender's total cost, fees included, is below the general interest charge (GIC) the ATO adds to overdue tax. Check the ATO's interest-free plan first, because a small business that qualifies and keeps to it pays no GIC at all.

The BAS came in bigger than planned, a big customer is paying at 60 days, and the ATO balance has been overdue since winter. This guide puts numbers on both options and covers the two ATO rules that make waiting expensive: credit reporting and director penalties.

What an overdue tax debt costs you now

The ATO applies GIC to tax that stays unpaid after its due date. It is worked out daily, compounds daily on the overdue amount, and the ATO reviews the rate every quarter.

For October to December 2026 the ATO's GIC annual rate is 11.51%, a daily rate of 0.03153425%. For July to September 2026 it was 11.43%.

As an example, a $40,000 overdue activity statement balance paid off in 12 equal monthly instalments would attract roughly $2,549 of GIC, if the October to December 2026 rate applied for the whole year. The real figure moves with each quarterly rate, but that is the order of cost a tax debt loan quote has to beat.

The change that made GIC dearer

GIC incurred on or after 1 July 2025 cannot be claimed as a deduction, according to the ATO. GIC incurred before that date can still be claimed in the year it was incurred.

The difference is easy to put a number on. At the October to December 2026 rate of 11.51%, a company paying tax at 25% that could claim GIC would have carried an after-tax cost of about 8.63%. Without the deduction, it carries the full 11.51%.

Whether the interest on a tax debt loan is deductible is a separate question, and it is not automatic. It depends on what the tax debt is and how the borrowed money is used, so confirm it with your accountant before you sign anything.

How an ATO payment plan works

A payment plan lets you pay the debt in weekly, fortnightly or monthly instalments over a fixed period. GIC keeps accruing on the balance while you pay, so the ATO steers you towards the shortest timeframe you can manage.

If you owe $200,000 or less, you may be able to set one up yourself through Online services for business or the ATO's automated phone service. You will need to call the ATO if you owe $200,000 or more or need longer than two years to pay. You may also need to call if you have defaulted on or cancelled two or more plans in the past 12 months.

Two conditions catch people out. Income tax and activity statement debts need separate plans. And every new tax bill has to be lodged and paid on time while the plan runs, or the plan can default and the full overdue balance becomes payable at once.

Check the interest-free plan first

The ATO offers an interest-free plan over 12 months for overdue activity statement amounts. It is for small businesses with turnover under $2 million that owe $50,000 or less, overdue for up to 12 months.

The business also needs a good lodgment and payment history, has to show ongoing viability, and must be unable to obtain finance through normal business channels. GIC is still charged, then remitted automatically as long as the plan is kept. If you qualify, a loan that charges interest cannot beat it on cost.

Director penalties: why company directors cannot wait

If your business is a company, an overdue activity statement can become a personal debt. The ATO says directors may become personally liable for the company's unpaid PAYG withholding, GST and super guarantee charge. It can recover those director penalties from a director 21 days after it issues a director penalty notice.

Lodging on time matters even when you cannot pay. If unpaid PAYG withholding or GST is reported within 3 months of the due date, the ATO's options to remit the penalty include the company paying in full or appointing an administrator. Reported more than 3 months late, or not reported at all, the penalty can only be remitted by paying the company's debt in full.

For a company director, that makes the activity statement debt the one to lodge and deal with first.

What the ATO can report to credit bureaus

The ATO may report a business's tax debt to credit reporting bureaus when the business has an ABN, at least $100,000 is overdue by more than 90 days, and it is not engaging with the ATO to manage the debt. A payment plan you keep to counts as engaging, and the ATO sends a notice with 28 days to act first.

Once reported, the debt sits on your business credit file, where lenders and suppliers who check it can see it, until it is paid in full or you engage with the ATO.

Tax debt loan vs ATO payment plan

When a tax debt loan makes sense

When the total cost is lower. Compare the loan's total cost over the term, fees included, with the GIC estimate from the ATO's payment plan estimator.

When you need a longer or steadier term. A loan gives fixed repayments over a set term, where an ATO plan pushes for the shortest period and every new BAS still has to be paid in full alongside it.

When the debt is large or the clock is running. A balance near $100,000 and approaching 90 days overdue, or a company director facing PAYG withholding or GST arrears, is where clearing the debt matters for more than the interest.

A tax debt loan does not suit every business. If the debt comes from a trading loss rather than a timing gap, a loan moves the problem without fixing it, and a registered tax agent may be the better first call.

Lenders generally look at the tax debt itself when they assess the application, along with recent bank statements and lodgment history. Unsecured business loans are a common way to finance it.

If your credit file has already taken a hit, our guide to business loans for bad credit covers what lenders look at. Subject to lender approval, terms, and conditions apply.

What to do next

Get the exact balance first. Check your account summary in Online services for business, and separate the income tax and activity statement amounts.

Lodge anything outstanding. For a company, lodging PAYG withholding and GST within 3 months of the due date keeps more options open, even if you cannot pay yet.

Check the interest-free plan. If you meet the ATO's criteria, it removes the GIC for up to 12 months.

Run the ATO's payment plan estimator, then get a loan quote on the same term. Ask for the total cost including fees, so the two numbers are comparable, and take both to your accountant.

If you are weighing a tax debt loan against an ATO payment plan, Emu Money's finance specialists compare business finance options across 50+ lenders and can tell you what a lender will look at before you apply. Compare business loan options.