Key Takeaways
- The general interest charge (GIC) on overdue tax is 11.51% for October to December 2026, compounds daily and has not been deductible since 1 July 2025.
- On a $150,000 debt with $2,500 in assumed loan costs, a 6% refinance only becomes cheaper than staying on a plan after about six months.
- Spreading the same debt over a 25-year mortgage costs about $139,940 in interest, compared with roughly $18,730 of GIC on a two-year plan.
- A payment plan keeps the family home out of the debt and leaves room to renegotiate with the ATO if trading turns.
The notice arrives in the same week as the business activity statement (BAS). Another quarter of interest has been added to the Australian Taxation Office (ATO) balance, the payment plan instalment has gone out on time and the debt has barely moved. For an owner with equity in a home or a commercial property, the next question is whether that equity should be doing the work instead.
On paper, the ATO payment plan vs refinance question looks like a rate comparison, with the general interest charge (GIC) on one side and a lender’s rate on the other. In practice, the length of each path, the upfront costs, the tax treatment of each type of interest and the security offered matter as much as the rate.
Where equity is available and the numbers point towards a payout, a tax debt refinance broker can check which lenders will fund the purpose and against which property.
How a Payment Plan and a Refinance Compare on Cost
A payment plan usually costs more in interest than a mainstream loan over the same period, but refinance fees, tax treatment and a longer loan term can reverse that result. The total for each path is shaped by:
GIC Compounding on the Remaining Balance
On a payment plan, GIC compounds daily on the unpaid balance for the whole life of the plan, so plan length drives the total cost. The ATO sets the rate each quarter, and its published quarterly GIC rates show 11.51% a year for October to December 2026, up from 11.43% in the quarter before. If that rate held for a full year, daily compounding would lift the effective cost to about 12.2%.
A $150,000 debt adds roughly $1,445 in the first month alone, which is why the ATO guides taxpayers towards the shortest plan they can manage.
Deductibility Gap Between GIC and Loan Interest
GIC incurred on or after 1 July 2025 cannot be deducted, while interest on a loan used to pay a tax debt may be, which can widen the real cost gap between the two paths. According to the ATO, this applies regardless of which income year the underlying debt relates to.
Where a business entity borrows to pay its own business tax debt, the interest is often deductible, depending on the type of tax owed. It is usually not deductible where the debt relates to salary, wages or investment income, or where a director borrows personally to pay a company’s tax. An accountant can confirm how this applies to a particular debt.
As an illustration, a 6% loan whose interest is fully deductible at the 30% marginal rate costs about 4.2% after tax, against 11.51% GIC with no deduction. That marginal rate applies to taxable income between $45,001 and $135,000 in 2026–27. Where the loan interest is not deductible, the gap narrows to the difference between the two headline rates.
Loan Rate Against GIC Over the Same Term
Standard home loan rates typically sit several percentage points below the current GIC rate, so over a matching term the loan interest is usually smaller. Specialist lenders that accept tax debt as a loan purpose price higher, and once their fees are counted, the saving over GIC can shrink to very little.
Both rates can move. Variable home loan rates may change after any cash rate decision by the Reserve Bank of Australia, and GIC resets every quarter, so the gap on the day of comparison may not hold for the whole term.
Upfront Costs That Narrow the Gap
A refinance usually carries one-off costs that a payment plan does not, and these may include:
- Establishment fee.
- Valuation fee.
- Settlement and discharge fees.
- Government registration charges.
- Break costs where an existing fixed rate ends early.
Fees vary by lender and state, so this list is a general guide only.
Lenders mortgage insurance (LMI) may also apply where the loan-to-value ratio (LVR) is above 80%. These costs land on day one, while the interest saving builds month by month, so on a small debt or one cleared quickly, the saving may never catch up.
Loan Term Behind the Total Interest Bill
A lower rate spread over a much longer period can cost more in dollars. Added to a 25-year home loan at an assumed 6%, a $150,000 tax debt costs more than seven times the interest of a two-year plan.
At about $970 a month, the repayment looks far lighter than the plan’s $7,030, which is what makes the trap easy to fall into. Owners who refinance to save interest often keep the savings by setting repayments near the old plan instalment, or by placing the cleared amount in a separate loan split with its own shorter term.
What Each Path Costs on a $150,000 Tax Debt
On a $150,000 debt, a mainstream refinance repaid over two years costs about $12,050 including fees, against about $18,730 on a two-year plan. Stretched over 25 years, the same refinance costs about $142,440.
The comparison assumes GIC holds at 11.51% throughout and repayments are monthly. The mainstream loan is set at 6% plus $2,500 in upfront costs, and the specialist loan at 9% plus $4,500. These rates and fees are illustrative assumptions, not quotes, and totals are rounded to the nearest $10:
| Path | Monthly Repayment | Total Interest | Upfront Costs | Total Cost |
|---|---|---|---|---|
| Payment plan over 24 months | $7,030 | $18,730 | $0 | $18,730 |
| Mainstream refinance over 24 months | $6,650 | $9,550 | $2,500 | $12,050 |
| Mainstream refinance over 25 years | $970 | $139,940 | $2,500 | $142,440 |
| Specialist loan over 24 months | $6,850 | $14,470 | $4,500 | $18,970 |
These figures are a general guide only. Actual rates, fees, GIC and tax treatment will differ, and the after-tax position may change which path costs less.
Payment Plan
None of the plan’s GIC is deductible, but the plan needs no valuation, set-up cost or change to the security over the home. Extra payments reduce the balance GIC is calculated on, so paying out early brings the total down.
Mainstream Refinance
Over the same 24 months, the mainstream refinance saves roughly $6,680 against the plan before any deduction on the loan interest. The saving depends on a lender willing to release equity for a tax debt, which some mainstream lenders will not do, and on repayments that follow a two-year schedule. A refinance broker can test lender appetite before an application is lodged.
Specialist Loan
At 9%, the specialist loan costs slightly more than the plan over 24 months, so its value lies in what it resolves. It may clear a debt where the ATO declines a new plan, stop recovery action or bridge to mainstream pricing once the financials show a clean year of trading.
Where loan interest is deductible, the after-tax cost may also fall below the plan’s. A private lending broker can outline the terms and the exit timing, so a specialist facility does not become the long-term home for the debt.
When a Payment Plan Is Usually the Better Fit
A payment plan usually suits a debt that will clear quickly, a business with strong cash flow or an owner with limited equity, and the situations that point that way are:
Debt Small Enough to Clear Within Months
On the assumptions used here, a plan is usually cheaper where the debt can be cleared within about six months. Clearing a $150,000 debt in three months costs about $2,900 in GIC, while a 6% loan over the same period costs about $4,000 once $2,500 in costs is added. At six months the two paths land within about $40 of each other, and only beyond that point does the loan pull ahead.
Smaller balances reach break-even later still, since the fees stay much the same while the interest saved shrinks.
Cash Flow That Can Carry the Instalments
A plan suits a business whose trading comfortably funds the instalments alongside each new BAS, pay as you go (PAYG) instalment and superannuation contribution. A business that can meet both is usually on track to clear the debt without extra borrowing.
Where the instalments are only affordable by delaying the next quarter’s liabilities, the plan is holding the problem in place.
Equity That Is Thin or Committed Elsewhere
Where adding the tax debt would push the LVR too high, a plan often makes more sense. The extra borrowing may trigger LMI, push the file towards specialist pricing or exceed what a lender will accept for this purpose.
Owners planning to buy, build or fund stock or equipment in the next year or two may also find that using the equity now leaves less room for borrowing that would have produced income.
Refund or Sale Proceeds Already Due
A known inflow within a few months can make a plan the natural bridge. Examples include a property settlement, the sale of equipment or a vehicle, a large receivable from a customer or a refund due on a return still being processed.
The ATO generally offsets refunds and credits against an outstanding debt, so a refund owed to the same taxpayer may reduce the balance without any action. Refinancing a debt that will largely clear itself adds costs for little benefit.
Hardship Needing Flexible Terms
Unlike a secured loan, a payment plan can be renegotiated. Where trading drops, a major customer is lost or illness intervenes, the ATO may agree to revised instalments, and remission of GIC may be available in limited circumstances.
Lenders may agree to hardship arrangements, but the terms are the lender’s to set, and repeated missed repayments can put the property at risk. For an owner whose income swings from quarter to quarter, keeping the debt with the ATO may preserve room to adjust.
When Refinancing Usually Makes More Sense
Refinancing tends to make more sense when a plan will run long, is barely reducing the balance or has become too large or fragmented to manage easily, and the signs that point that way are:
Plan Running Well Past 12 Months
On the assumptions used here, refinancing usually costs less once a plan runs past about 12 months. A 12-month plan on $150,000 costs about $9,560 in GIC, while a 6% loan over the same year costs roughly $7,420 including $2,500 of costs. The gap keeps widening as a plan approaches two years, provided the loan is repaid on a similar timeframe.
Instalments Barely Moving the Balance
A plan whose instalment only covers the monthly GIC is often the point where refinancing is worth assessing, because the balance barely falls. On a $150,000 debt, that means paying around $1,450 a month to stand almost still, much like an interest-only loan at 11.51% with no deduction for the interest.
At a 6% rate, about half of the same $1,450 repayment reduces the debt from the first month.
Debt Above the $200,000 Self-Service Limit
Debts above $200,000 face closer ATO scrutiny before a plan is agreed, which can tip the decision towards refinancing. According to the ATO, debts of $200,000 or less can often be placed on a plan through online services or the self-help phone line. Larger debts usually need a phone call.
In that call, the ATO may ask about income, expenses, assets and bank balances. The terms it agrees to depend on that position, so the plan may be shorter or more demanding than the owner hoped.
Several Plans Across Separate ATO Accounts
Refinancing can replace several ATO payment plans with one repayment against one security. According to the ATO, income tax and activity statement debts each need their own plan. A group where a company, a trust and an individual all owe tax may therefore be tracking several plans with different due dates, each accruing GIC.
One loan removes the risk that a small plan defaults while attention is on the larger one. At settlement, each account is paid separately and each plan cancelled, following the usual tax debt payout steps.
Equity Available at Mainstream Pricing
Refinancing is most likely to pay off where a mainstream lender will fund the purpose. That typically needs lodgements up to date, a debt that has been fully assessed, a business trading profitably now and an LVR the lender is comfortable with after the cash-out.
Where only specialist pricing is available, the saving over GIC shrinks and the decision rests more on the risks outside the rate.
Recovery Risk From a Missed Instalment
A missed instalment can end the protection a plan provides, while a debt paid in full is no longer subject to ATO recovery action. The ATO may cancel a defaulted plan and move to firmer action, such as garnishee notices issued to banks or customers. For companies, director penalty notices may follow where goods and services tax, PAYG withholding or superannuation guarantee charge amounts remain unpaid.
The ATO also asks closer questions where two or more plans have been defaulted or cancelled within 12 months. Under its disclosure rules, it may report a business’s tax debt to credit reporting bureaus where the business has an Australian Business Number, is not an excluded entity, has at least $100,000 overdue for more than 90 days, is not engaging with the ATO on the debt and has no active complaint with the Tax Ombudsman about the intended report.
Risks of Refinancing Beyond the Interest Rate
Refinancing changes who the debt is owed to and what stands behind it, and the risks that come with that change are:
Home Security Replacing an Unsecured Debt
Refinancing turns an unsecured tax debt into a debt secured by a mortgage over the property. The ATO has wide recovery powers, but a tax debt on a plan is not secured against the family home.
A company or trust may owe the tax while the equity sits in personal names. In that case, the owner may be using personal property to clear a debt that was not personally theirs. The entity that owes the tax is usually the borrower or a guarantor in that structure, and a trust and company lending broker can clarify how each lender documents it.
Serviceability Tested Above the Loan Rate
A lender assesses the new loan at a rate above its actual rate, which can limit how much it will release. The Australian Prudential Regulation Authority confirmed on 28 May 2026 that the mortgage serviceability buffer remains at 3 percentage points, so a loan priced at 6% is assessed at about 9%.
For a business owner whose recent financials were dented by the same pressures that created the tax debt, that test can reduce the amount available or rule out mainstream pricing altogether. Some non-bank and private lenders apply different tests, usually with higher rates attached.
Credit Enquiries From Lender Applications
Each loan application can add an enquiry to the applicant’s credit report, since the report records applications for credit as well as repayment history. Several enquiries in a short period may make later lenders more cautious, depending on the lender’s policy.
Tax debt is a reason some lenders decline outright, so an application sent to the wrong lender can cost a credit enquiry as well as time. Checking lender policy before an application is lodged may keep the number of enquiries down.
Tax Debt That Rebuilds After the Payout
A refinance clears the balance but not the cash flow pattern that produced it. Where the next BAS or income tax assessment arrives without funds set aside, a new debt can build on top of a larger mortgage, and a second tax debt refinance may meet a cooler reception than the first.
Owners who come through well tend to pair the payout with a change in how tax is funded, such as a separate account filled from each deposit at a percentage set by their accountant. Where the underlying issue is short-term debt funding long-term assets, restructuring business debt may do more for cash flow than the payout alone.
Figures to Gather Before Deciding
The figures that decide the comparison for a particular debt are:
- Current balance of each ATO account, including GIC to date.
- Projected payoff date at the current instalment amount.
- Current property value and existing loan balance.
- Indicative loan rate, repayment term and every upfront fee.
- Accountant’s written view on the deductibility of loan interest.
- Cash flow forecast for the next 12 months, including new tax obligations.
This list is a general guide only. The figures that matter most may vary with the entity that owes the debt, the lender and the security offered.
Tax Debt Balance That Finally Starts Falling
The worry behind this question is usually the one on the latest ATO notice, a balance that barely moves while interest keeps landing on it. What matters is which path gets that number falling for less, with a level of risk you can live with.
That becomes clear once both paths are costed over the same period with your own balance, payoff date, loan terms and tax treatment. For some owners, a shorter plan with larger instalments may be enough to turn the debt around. For others, a loan repaid on a similar timeframe may clear it for less, with the home now standing behind what was once an ATO debt.
If you are weighing up another year on a payment plan against clearing the debt through your property, the team at Loanworx Group can talk you through the options that suit your circumstances.
Frequently Asked Questions (FAQs)
1. Can I refinance while I am already on an ATO payment plan?
In many cases, yes. Lenders often read conduct on a plan much like repayment history on a loan, though current lodgements and a fully assessed debt usually matter more than the plan itself.
Keeping the plan running until settlement generally protects the position, since a default during assessment can change how a lender reads the file.
2. What happens to my payment plan if the refinance is declined?
Nothing changes on the ATO side, provided the instalments have been kept up. The plan continues on its existing terms and GIC keeps accruing on the balance.
Another lender may still accept the purpose or a second property may be offered as security. The ATO may also agree to revised terms if the current instalments are hard to sustain.
3. Will refinancing a tax debt reduce my borrowing power later?
It may. The larger mortgage is assessed at the loan rate plus the serviceability buffer in any future application, which can reduce how much you could borrow for a later purchase.
A tax debt left on a plan is counted too, and how lenders read tax debt varies widely between them. A cleared balance with clean trading behind it generally presents better than an open one.
4. Can I use redraw or an offset balance instead of a new loan?
Often, yes, where the funds are already there. Money in an offset account reduces interest at the home loan rate, while the same money used to clear the tax debt avoids GIC at 11.51%.
That choice also shrinks the cash buffer the business may rely on. Redraw works in a similar way, although redrawn funds used for a business or tax purpose can complicate the deductibility of interest on that part of the loan, so the accountant’s view matters before drawing.
5. Is an unsecured business loan cheaper than staying on a payment plan?
Sometimes, though often not. Unsecured business lending is typically priced above secured home lending, can exceed the GIC rate once fees are included and usually runs on short terms with high repayments.
It can make sense where there is no property to offer as security and the ATO will not agree to a workable plan.
This article provides general information only. It does not take into account your objectives, financial situation or needs, and you may wish to speak with a qualified accountant, registered tax agent or credit professional before acting. Rates, fees and lending approval are subject to lender assessment and may change. The general interest charge is set quarterly by the ATO, and the rate quoted applies to the October to December 2026 quarter.
