What Businesses with ATO Debt should know about their options

The post-pandemic leniency that many businesses had come to rely on with the ATO is firmly over. Total collectable tax debt across the small business sector now sits well above $50 billion, and the ATO has significantly stepped-up enforcement activity, issuing nearly 85,000 director penalty notices in 2024-25 alone.

From 1 July 2025, interest charges on business tax debt were also deemed non-deductible by the ATO, increasing the real cost of carrying that debt. For businesses that have been using overdue tax obligations as an informal cash flow facility, the environment has shifted considerably.

The good news is that businesses in this position have more options than many realise, and acting early can make a significant difference.

ATO payment plans are a starting point, not a solution

The ATO does offer payment plans, and for businesses with manageable debt levels and strong ongoing cash flow, these can provide breathing room. However, interest continues to accrue on the outstanding balance, and ATO payment plans sit alongside your existing financial obligations rather than replacing them. For businesses already stretched, a payment plan alone may not be enough to stabilise the position.

Business finance can be used to clear tax debt

One option available to eligible businesses is using a business loan or line of credit to pay out the ATO debt and consolidate it into a single commercial facility. This converts the tax debt into a structured business loan with defined repayment terms, removes the ATO as an active creditor, and can reduce the overall interest cost depending on the rate secured. For lenders, a business carrying ATO debt is a more complex application than one without. The business needs to demonstrate viable ongoing trading, and the purpose of the loan will be scrutinised. This is an area where working with a finance broker who understands business lending can make a meaningful difference to both the outcome and the speed of the process.

Acting early keeps more options open

The further a tax debt increases, the fewer the options available to resolve it. Once the ATO issues a director penalty notice, directors become personally liable for certain obligations, including PAYG withholding, GST and superannuation. Garnishee notices, court recovery action, and, in serious cases, departure prohibition orders are all tools the ATO is actively using. Businesses that engage early, before enforcement escalates, are in a much stronger position to negotiate, refinance or restructure. Waiting until the pressure becomes acute significantly narrows what is available.

How a finance broker can help

A finance broker with experience in business lending can help compare your options across a range of business loan products and structure an application that presents the business in the strongest possible light.

If your business is carrying ATO debt, speaking to a finance broker early is a good first step.

This article is general in nature and does not constitute tax advice. Please consult a qualified accountant or tax adviser regarding your specific circumstances.

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