ATO debt: should you use a payment plan or a business loan?
Owing the ATO is more common than you'd think. Here's how a payment plan compares to clearing the debt with a business loan.
By Hayden Gemmill, Fund 360 · 6 October 2026
Plenty of good businesses fall behind with the ATO, whether it's GST, PAYG withholding or income tax. A tough quarter, a big job paid late or a growth spurt can all leave a gap. The important thing is to deal with it early, while you still have options.
Why it pays to act early
- The ATO charges interest on overdue amounts, and from 1 July 2025 that interest is no longer tax deductible for businesses.
- Larger overdue business tax debts can be reported to credit reporting agencies, which can make future finance harder to get.
- The longer a debt sits, the fewer options you tend to have, and the more pressure it puts on cash flow.
Option 1: an ATO payment plan
The ATO may let you pay the debt off in instalments. It can be a good fit for smaller debts you can clear quickly. Interest keeps accruing while the debt is outstanding, you need to keep up with every instalment and your new lodgements, and the ATO decides the terms.
Option 2: a business loan to clear the debt
Some lenders will lend specifically to pay out an ATO debt. You clear the ATO in one go, then repay the lender over an agreed term with fixed repayments. Depending on your situation, the loan's interest may be tax deductible, so it's worth checking the numbers with your accountant.
| ATO payment plan | Business loan | |
|---|---|---|
| Who sets the terms | The ATO | Agreed with the lender |
| Repayments | Instalments set with the ATO | Fixed, over a term that suits your cash flow |
| Interest | General interest charge, not deductible | Lender's rate, may be deductible |
| The ATO debt | Stays open until fully paid | Cleared straight away |
What lenders look for
- A current ATO statement showing what's owed.
- Your BAS and tax lodgements brought up to date.
- How long you've been trading, and recent business bank statements.
- That the business can comfortably handle the new repayments.
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This guide is general information only and doesn't take into account your objectives, financial situation or needs. It isn't financial, tax or legal advice. Talk to us about your situation, and to your accountant about tax.