ATO debt and business loans: what brokers need to know

ATO debt is one of the most common reasons an SME deal gets harder to place. It's also one of the most misunderstood. Clients often don't know how much they owe, whether it's on a plan, or whether it has already been reported to the credit bureaus. This guide covers the facts brokers need: how ATO debt becomes visible, what it costs the business, why directors can become personally liable, what the ATO's payment plan options are, and how to prepare a deal before you approach a lender.

Why ATO debt matters more now

Small business tax debt is large and the ATO is actively collecting it. Small businesses owed around $35.9 billion in collectable debt as at 30 June 2025, about 66 per cent of all collectable debt owed to the ATO (ATO).

The ATO lists a range of "firmer actions" it may take on unpaid debts, including reporting business tax debts to credit reporting bureaus and issuing director penalty notices. Both matter when your client is applying for finance.

The RBA has also noted that unpaid tax debts hurt a business's creditworthiness when it seeks finance (RBA, 2018). We cover how lenders weigh this alongside other criteria in How SME lenders assess a deal.

When the ATO reports a business tax debt

The ATO can disclose a business's tax debt to registered credit reporting bureaus. It reports a business only when all of these apply (ATO):

• the business has an ABN and isn't an excluded entity (such as a registered charity, deductible gift recipient, complying super fund or government entity)

• it has one or more tax debts, with at least $100,000 overdue by more than 90 days

• it isn't effectively engaging with the ATO to manage the debt

• it has no active Tax Ombudsman complaint about the intent to report

"Effectively engaging" is the key test. A business that is complying with a payment plan, or has an active objection, review or appeal about the debt, isn't reported even if it owes more than $100,000. The ATO says cash flow problems or financial hardship generally aren't treated as exceptional circumstances on their own.

There's a warning first. The ATO sends a written notice before reporting, and the business has 28 days from receiving it to act.

Who receives it. The ATO shares the information with bureaus that have signed an agreement with it: Access Intell, Alares Systems, CreditProtect, CreditorWatch, Equifax, Experian and Fiable (ATO). CreditorWatch says the ATO sends updated records weekly, and that the data is incorporated into business credit scores and reports (CreditorWatch).

How it comes off. The information is removed from the bureau's report once the business no longer meets the criteria: when the debt is paid in full, or when the business starts effectively engaging with the ATO, for example by entering and keeping to a payment plan.

What ATO debt costs the business

Overdue tax attracts the general interest charge (GIC), which compounds daily. The ATO publishes the current rate each quarter on its GIC rates page.

GIC is no longer tax deductible. From 1 July 2025, interest the ATO charges for late payment or underpayment can't be claimed as a deduction, including GIC incurred after that date on debts from earlier years (ATO). Interest on a business loan used for business purposes generally remains deductible, which changes the comparison a client may have made in the past. Their accountant should confirm how this applies to them.

A payment plan doesn't stop interest. The ATO says tax debts on a payment plan continue to accrue GIC, compounding daily (ATO).

Why directors take it personally

Under the director penalty regime, directors can become personally liable for their company's unpaid PAYG withholding, GST and super guarantee charge (ATO).

• The 21-day notice. Before recovering a director penalty, the ATO must issue a director penalty notice (DPN). The director has 21 days to act.

• Reporting on time keeps more options open. If PAYG withholding or GST was reported within 3 months of its due date, the penalty can be remitted within the 21 days by paying in full, appointing an administrator or small business restructuring practitioner, or winding up the company.

• Late or unreported amounts are "locked down". If PAYG withholding or GST wasn't reported within 3 months of the due date, or super guarantee charge wasn't reported by its due date, the only way to remit the penalty is to pay the company's debt in full.

• New directors have 30 days. A new director can be liable for amounts from before their appointment unless one of the remission outcomes happens within 30 days.

For a broker, this explains why a director may want to clear ATO debt quickly, and why up-to-date BAS lodgment matters even when the business can't pay straight away.

The ATO's payment plan options

Knowing these helps you have a sensible conversation with the client and their accountant before you talk to a lender.

• Self-service plans. A business owing $200,000 or less may be able to set up a plan through Online services for business or the ATO's automated phone service, without speaking to anyone. Larger debts, plans longer than 2 years, recent defaults and some other situations require contacting the ATO directly (ATO).

• Separate plans for separate debts. Income tax and activity statement debts need separate plans.

• Interest-free plans for some small businesses. A business with turnover under $2 million and overdue activity statement amounts of $50,000 or less (overdue up to 12 months) may qualify for an interest-free plan, paid by direct debit within 12 months. Conditions include no outstanding activity statement lodgments, no more than one plan default in the last 12 months, demonstrated ongoing viability, and being unable to get finance through normal business channels (ATO).

Note that last condition. If the client's plan is to refinance ATO debt with a loan, their accountant should consider how that interacts with any ATO arrangement they're relying on.

Getting a deal with ATO debt ready

Lender policies on ATO debt vary widely: some decline it outright, some accept it if it's on a plan and up to date, and some will lend to pay it out. So the first job is getting the facts straight. Before you approach anyone, find out:

1. The exact amount, by account. Income tax and activity statement balances are separate. Ask for a current statement from the ATO portal or the client's accountant, not the client's estimate.

2. How old it is. Is any amount over 90 days overdue?

3. Whether it's on a payment plan, and whether repayments are up to date. Get the plan details in writing.

4. Whether lodgments are current. Outstanding BAS or tax returns are a separate issue from the debt itself, and they affect director penalty exposure.

5. Whether it has been reported. Has the business received a notice of intent to report, or does the debt show on a business credit report?

6. Any DPNs or other firmer action. Garnishee notices, DPNs or legal action change the conversation completely.

7. What the loan is for. Paying out the ATO, working capital alongside a plan, or something else entirely? Be upfront about it.

With those answers, you can narrow the field quickly. ATO debt sits alongside time in business, turnover, credit history and industry as one of the hard policy limits that rules lenders in or out. That's what Visro is built for: enter the scenario once and see which lenders on the panel fit, and why the others don't.

Questions clients often ask

Can I get a business loan with ATO debt? Sometimes. It depends on the amount, whether it's on a plan and up to date, whether it's been reported, and the rest of the application. Policies differ a lot between lenders, which is why accurate figures matter.

Will the ATO tell the credit bureaus? Only if the business meets all the reporting criteria, including at least $100,000 overdue by more than 90 days and not effectively engaging with the ATO. It gets a written notice and 28 days to act first.

If I go on a payment plan, does the listing come off? The ATO says reported information is removed when the business no longer meets the criteria, which includes effectively engaging with the ATO, such as by keeping to a payment plan.

Is the interest on my ATO debt still deductible? Not for GIC incurred from 1 July 2025. Check with your accountant.

The short version

• Small businesses owed around $35.9 billion to the ATO at 30 June 2025, and the ATO is actively collecting.

• The ATO can report a business tax debt to credit bureaus once $100,000 or more is over 90 days overdue and the business isn't engaging. There's a 28-day warning first.

• GIC compounds daily, keeps running on payment plans, and isn't deductible from 1 July 2025.

• Directors can be personally liable for unpaid PAYG withholding, GST and super guarantee charge, and late reporting removes most of their options.

• Plans of $200,000 or less can often be set up online, and some small businesses qualify for interest-free plans.

• Before approaching a lender, get the exact figures, plan status, lodgment status and reporting status in writing.

Sources

• ATO: ATO responds to ANAO audit report on management of small business collectable debt

• ATO: Disclosure of business tax debts

• CreditorWatch: ATO tax debt disclosures FAQ

• ATO: Reminder on interest deductibility changes from 1 July

• ATO: General interest charge (GIC) rates

• ATO: Payment plans

• ATO: Setting up a payment plan

• ATO: Interest-free payment plans for overdue activity statement amounts

• ATO: Director penalty regime

• RBA Bulletin, September 2018: Access to small business finance

This article is general information only. It isn't legal, tax, financial or credit advice and doesn't take into account anyone's circumstances. ATO rules and lender policies change, so always confirm details with the ATO, a registered tax agent and the lender. Visro does not provide credit assistance or financial advice.