ATO Payment Plans: Why They’re Suddenly More Expensive.

For years, small business owners who had a tax bill they couldn’t quite pay up front often turned to an ATO payment plans. Sure, the interest rate wasn’t great, but it was tax-deductible, which softened the blow somewhat.

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From 1 July 2025 though, that’s changed. Interest on ATO payment plans is no longer deductible, which is leaving many businesses facing a much higher “real” cost of carrying ATO debt.

Don't let ATO debt keep you awake at night

Previously, ATO General Interest Charge (GIC - currently around 10.76% p.a.) was deductible for business-related tax debts. A company paying 30% tax effectively felt an after-tax cost closer to 7.5%. Now? The full 10.76% is payable with no tax offset. In other words, what you see is what you pay.

Does an ATO debt equate to poor business management?

It’s not always a sign of incompetent management. Even strong businesses can find themselves owing the ATO for legitimate reasons:

• Cashflow timing - BAS is due before major invoices are paid.

• Unexpected one-off expenses - equipment breakdowns or legal costs.

• Strategic growth - investing in staff, stock, or premises.

• Delayed payments - waiting on government grants or rebates.

The real test isn’t whether a business ever carries an ATO debt, but how they manage it.

Client Example: Consolidating ATO Debt into a Home Loan

I recently worked with a sole trader who had a $63k ATO debt ($57k principal and more than $6k in accrued interest). Their home loan was sitting at around 44% LVR - so plenty of equity.

We refinanced to consolidate the ATO debt into their mortgage. Normally, rolling short-term debt into a 30-year home loan isn’t ideal, but in this client’s case it made sense: their clear plan is to pay out the home within 3–4 years or downsize in five.

This approach gave them breathing space, cleared the ATO balance, and kept repayments manageable without putting their business at risk.

Considerations:

• Short-term vs long-term cost: Extending the term can mean more interest if not repaid early.

• Security: Refinancing secures tax debt against your home.

• Lender requirements: Most banks won’t approve new loans while ATO debt is outstanding, which makes clearing it essential for refinancing to a big 4. However, if your priority after discussing with your accountant is to ameliorate the ATO debt, there are excellent specialist lenders with appetite for this.

• Professional advice: Always check the tax treatment and structuring with your accountant.

  
  

The Upshot

With the loss of deductibility, ATO payment plans are no longer the “cheap” option many assumed. For solvent business owners with equity in their home, refinancing can be a smart way to clear ATO debt - but it needs to be done with a clear strategy and in line with your long-term goals.

Next Steps

If you’re a business owner carrying an ATO debt and you’re wondering whether refinancing could make sense for you, I can help you explore the options and show you the numbers. Then, with your accountant’s input, you’ll have the full picture to make the best decision.

This is not financial advice. Always discuss with your accountant what is the ideal strategy for your situation. I am only too happy to collaborate with your accountant or financial advisor to reach your goals.

Get in touch today to discuss your situation in confidence.