Owing the ATO doesn't rule a business out of finance. Small business tax debt the ATO can collect reached $35.9 billion of its $54.2 billion total at 30 June 2025. That's up 118% since 2018-19, so any lender reading your file today has seen this before. What changes is what the lender looks at, how closely, and which lenders on the panel will still take the deal.
How lenders actually read an ATO debt on your file
A tax debt over $100,000 that's been overdue for more than 90 days can show up on your business credit file. The ATO has been able to report eligible debts to credit reporting bureaus since 2019, so a lender may see the debt before they see your BAS.
From there, it goes one of two ways.
If the debt is on a payment plan you're keeping up with, lenders read that as a business managing the debt, not ignoring it. Most second-tier banks and specialist working capital lenders will still do a deal here. They count the plan as a fixed monthly cost when they work out whether you can afford the loan, the same as a lease or loan repayment.
If the debt is in default, with no plan or one that's lapsed, mainstream lenders back off. A lapsed plan means the ATO could move to garnishee notices or a director penalty notice, and no lender wants to sit behind that risk. These deals usually go to a specialist cashflow lender who charges more for the risk instead of saying no. Our breakdown of the six categories of business lender in Australia shows where each type sits on risk.
What actually moves the decision
Four things matter more than the size of the debt:
- Debt compared with revenue. A $40,000 debt against $2M a year in turnover barely registers. The same $40,000 against $250,000 turnover is a real problem for affording a loan.
- How the debt built up. A one-off GST bill from a big batch of invoices looks different from years of unpaid PAYG withholding. Lenders will ask, and an honest answer matters more than the number.
- Your trading before and after the debt. Six months of clean statements since the debt was raised tells a different story from statements showing the same shortfall every quarter.
- Whether there's a director penalty notice (DPN). A DPN moves the deal from "manage the debt" to "fix it now".
ATO payment plan vs a cashflow facility: the real cost comparison
An ATO payment plan isn't free. The general interest charge (GIC) on unpaid tax is currently 11.43% a year for the quarter to 30 September 2026. It's worked out daily and compounds on the balance owing. Since 1 July 2025, you can no longer claim GIC as a tax deduction, which makes carrying the debt dearer for every business paying it.
Take a $120,000 debt paid off evenly over 24 months on an ATO plan. The balance falls from $120,000 to zero, so on average you owe about $60,000. At 11.43% GIC, that adds roughly $13,700 in interest over the plan, on top of the $120,000, and none of it is deductible.
A working capital facility that clears the same debt in six to nine months changes two things. You carry the debt for less time, and GIC stops the day the ATO is paid. Whether the facility is cheaper overall depends on its rate and fees over that shorter period, not just its headline rate. Once you have quotes, compare them properly using our guide to working out the true cost of a business loan.
A facility makes more sense when the debt is large compared with turnover, when a DPN is close, or when you need to reset things with the ATO to negotiate future terms. Staying on the plan makes more sense when the pressure is short-term and the plan is affordable on current trading.
When a director penalty notice changes the calculus
The ATO issued more than 84,000 director penalty notices in the 2024-25 financial year, up 136% on the year before. A DPN makes company directors personally liable for PAYG withholding, superannuation guarantee charge and GST debts that would otherwise sit with the company alone.
On a non-lockdown DPN, a director has 21 days from the notice date to act before personal liability locks in. They can pay the debt in full, put the company into voluntary administration, or appoint a small business restructuring practitioner. That 21-day window is often why a working capital facility beats renegotiating a plan from scratch. It can clear the debt inside the window, which a fresh ATO negotiation usually can't.
What we assess before approaching a lender
Before Aurelius Capital takes an ATO debt deal to lenders, we look at three things: the plan status (active, lapsed or none), whether there's a DPN, and the debt compared with the last 12 months of revenue. That decides whether the deal goes to a mainstream bank, a second-tier lender or a specialist cashflow lender, and it shapes how we present the application. A deal presented as "$40,000 GST debt, six months of clean trading since, plan kept up to date" gets a different reception from the same figure with no context.
If the ATO debt is part of a wider cash flow gap rather than a one-off, a working capital facility based on your revenue, not just the debt, usually does more for the business than clearing the ATO alone. Our guide to working capital finance options in Australia covers the types of facility on offer.
Next step
If you owe the ATO and want a broker's view on whether a facility beats your current plan, and which lenders will actually take the deal, the application form is the fastest way to get it. Most enquiries get a reply within four business hours.
Sources
- ATO ramps up debt recovery as small businesses rack up $35.9B in unpaid tax, Dynamic Business
- General interest charge (GIC) rates, Australian Taxation Office
- Denying deductions for ATO interest charges, Australian Taxation Office
- Director Penalty Notices under review in 2026 as ATO usage surges, SmartCompany
- Director penalties, Australian Taxation Office