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How the debt arose, and whether it came from a bad year, a growth phase or a pattern
Home loans to pay out ATO tax debt have become a serious question rather than a last resort. For years, carrying a tax debt was survivable: the general interest charge (GIC) was painful but deductible, and a payment plan bought time. Two changes have made that arithmetic worse, and a debt that felt manageable in 2023 is compounding faster than most business finance today.
The first is cost. GIC compounds daily and is set each quarter, and it is 11.43% for the July to September 2026 quarter. The second is deductibility: the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 removed the deduction for GIC and shortfall interest charge (SIC) incurred from 1 July 2025, regardless of which income year the debt relates to. The interest did not just rise. The offset that softened it disappeared.
Where there is equity in a home or a business property, refinancing to clear the debt is often cheaper than carrying it, and it stops the compounding. As Melbourne finance brokers arranging both residential and commercial finance, we look at both sides of the balance sheet before recommending which one should do the work.
Carrying a tax debt and watching it grow? Call us on 1300 562 696 before it reaches the point where the options narrow.
What a Payment Plan Does and Does Not Do
GIC keeps running through a payment plan. Entering an arrangement stops recovery action while you keep to it, but the charge continues to accrue on the outstanding balance and compound daily for the life of the plan. A longer plan on the same debt costs more in total than a shorter one, which is why a plan is a breathing space rather than a solution.
How a Tax Debt Becomes Visible to Lenders
Owners often assume a tax debt is private. It is visible in several places at once:
- Disclosure to credit reporting bureaus, where a business has an Australian Business Number (ABN), at least $100,000 overdue by more than 90 days, and is not engaging with the ATO to manage it
- Business financial statements and the balance sheet, where unpaid liabilities are visible to anyone assessing the file
- Business activity statement (BAS) lodgement history, which shows a pattern of arrears rather than a one-off
- Bank statements, where regular payments to the ATO reveal a plan the application form did not mention
- Director penalty notices and garnishee notices, which are firmer actions taken when engagement stops
The disclosure measure is not automatic or instant. The ATO issues a notice of intent first, and the business has 28 days to act. Where the debt is paid or the owner is genuinely engaging with the ATO, the information is not reported, and a listing already made is removed once the criteria are no longer met. A complaint with the Tax Ombudsman about the intended reporting also stops it while it is active.
What Lenders Ask Before Funding a Payout
A tax debt is not automatically a problem to a lender. An unexplained one is:
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Whether every lodgement is up to date, because an unlodged return means the debt is not yet a known number
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Whether a payment plan exists and has been met, since conduct on the plan is read like repayment history
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Whether the business is trading profitably now, or whether the payout simply resets a problem
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Whether the payout clears the debt in full, which usually means paying the ATO directly at settlement
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Whether the equity leaves a loan to value ratio (LVR) the lender panel can work with after the cash-out
Lodgements are the practical gate. A tax debt refinance cannot be sized against a liability nobody has quantified, and getting the returns and statements lodged is often the single step that unlocks the rest.
How Loanworx Group Helps with Tax Debt
Loanworx Group handles home loans, commercial finance and asset finance under one roof, which matters here because the answer often sits on the business side and the security often sits on the residential side.
We work out what the debt costs you now, what a payout would cost, and which lender will fund it against the security you have. We coordinate with your accountant throughout, because the deductibility question and the lodgement position both sit with them, and we stay involved past settlement so the same debt does not rebuild.
Where This Leaves You
A tax debt is loud, which is not the same as unsolvable. Once the lodgements are current, the cost of carrying it sits next to the cost of clearing it, and a lender has told you which option it will fund, the debt stops being the thing you think about at 3am and becomes a number with a date attached. Most owners in this position find the debt was never the hardest part. Not knowing what it was going to cost them was.
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The Ways to Clear a Tax Debt
Each path costs something different, and the cheapest option depends on what you can secure and how fast you need it done:
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Option |
How It Works |
What to Weigh Up |
|
ATO payment plan |
You agree a schedule with the ATO and pay the debt down over time |
GIC keeps accruing and compounding daily, so a long plan is expensive |
|
Refinance or cash out against the home |
You draw on equity in a residential property to clear the debt in one payment |
Pricing is usually the lowest available, though the lender panel is narrower than for an ordinary cash-out |
|
Specialist or non-bank tax debt facility |
You borrow from a lender that accepts tax debt as a purpose, often quickly |
Rates and fees are higher, terms are shorter, and a refinance back to mainstream pricing should be planned |
|
Facility secured by commercial property |
You borrow against business real estate rather than the family home |
Business security keeps the family home out of it, though the lender panel is narrower and assessment focuses on the business |
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Asset sale |
You sell a property, vehicle or piece of equipment and use the proceeds to clear the debt |
Ongoing costs stop entirely, though the timing rarely suits and capital gains tax may apply |
Whether interest on a new loan is deductible depends on how the tax debt arose, not on the fact that it is a tax debt. Your accountant should confirm the position before you commit, because it can change the real cost of every option above.
Where Mainstream Lenders Stop and Specialists Start
Many mainstream lenders will not release cash to pay a tax debt at all, regardless of your equity. It is a policy position, not a judgement on you, and it is why borrowers with plenty of equity still get declined by their own bank.
Specialist tax debt lending will fund it, at a higher rate and usually a lower maximum LVR. Compare that against GIC, not against the advertised rate you cannot access. An ATO debt home loan at a specialist rate can still cost less than a non-deductible charge compounding daily, and the sensible version of it comes with a plan to refinance to mainstream pricing once the debt is gone and the financials look normal again.
Frequently Asked Questions (FAQs)
Can I refinance my home to pay out an ATO debt?
Often, yes, where there is enough equity and the lender accepts the purpose. Many mainstream lenders will not release funds for a tax debt, so the application usually goes to a lender whose policy allows it, with the ATO generally paid directly at settlement.
Will an ATO debt show up on my credit file?
It can. The ATO may report a business tax debt to credit reporting bureaus where the business has an ABN, at least $100,000 is overdue by more than 90 days, and it is not engaging to manage the debt. A notice of intent is issued first, with 28 days to act, and the listing is removed once you pay or engage.
Does an ATO payment plan stop the interest?
No. A plan pauses recovery action while you keep to it, but the general interest charge continues to accrue on the balance and compound daily. Paying the debt over a longer period costs more in total than paying it over a shorter one.
Is the interest on a loan used to pay tax debt deductible?
It depends on how the tax debt arose rather than on the loan itself. Where the debt came from carrying on a business, interest on the borrowing is generally deductible; where it relates to salary or investment income, it generally is not. Your accountant should confirm your position before you proceed.
Do I need my lodgements up to date first?
Almost always. Until the returns and statements are lodged, the debt is an estimate rather than a figure, and a lender cannot size a payout against it. Getting current is usually the step that opens the rest of the options.
This information is general in nature and does not take into account your objectives, financial situation or needs, and it is not tax advice. Lending approval, rates, fees and loan features are subject to lender assessment and can change. The general interest charge is set quarterly by the ATO and the figure quoted relates to the July to September 2026 quarter. Deductibility, lodgement and tax debt strategy should be confirmed with your accountant or registered tax agent, and you should consider speaking with a qualified mortgage broker before securing a tax debt against your home.
Talk to a Tax Debt Finance Broker
Tell us the size of the debt, what is lodged and what you own. Call 1300 562 696 and we will map what clearing it would cost against what carrying it is costing.
