Tax bill due: short-term loan or ATO payment plan?

What are your options when a tax bill is bigger than the bank balance?

First, don’t ignore it. The ATO’s guidance for businesses that can’t pay on time is clear: contact them before the due date. From there, the realistic choices are:

1. An ATO payment plan — pay the debt off in instalments directly to the ATO.
2. A short-term loan — borrow to pay the ATO in full, then repay the lender over a defined term.
3. A combination — pay part now (from a loan or cash) and put the balance on a plan.

Each has a place. The right one depends on the size of the debt, how soon you can repay it, whether property is available and how much risk you’re carrying personally.

How does an ATO payment plan work?

The ATO says businesses that owe $200,000 or less may be able to set up a payment plan through online services. Larger debts, or plans that can’t be set up online, need a call to the ATO. The ATO proposes an upfront amount and suggested instalments, which you can adjust within limits.

Two points matter for cost:

• General interest charge (GIC) keeps accruing on the unpaid balance while the plan runs.
• GIC is no longer deductible. The ATO confirms that GIC and shortfall interest charge incurred on or after 1 July 2025 can’t be claimed as a tax deduction, even if the underlying debt relates to an earlier year.

So the after-tax cost of an ATO plan is now the full GIC.

How does a short-term loan compare?

A loan pays the ATO in full. The debt to the ATO disappears and is replaced by a debt to a lender, with its own fees, time-based cost, term and exit.

The ATO’s list of common business operating expenses includes interest on money borrowed for income tax obligations and employer super contributions, as well as for producing assessable income — check how it applies to you with your accountant. That means the after-tax cost of loan interest may be lower than its face value, while GIC’s after-tax cost is its face value.

	ATO payment plan	Short-term loan
Set-up	Online if $200,000 or less	Application, possibly security
Upfront fees	None from the ATO	Establishment and other fees
Ongoing cost	GIC on unpaid balance	Time-based cost on the loan
Tax treatment of the ongoing cost	GIC not deductible (from 1 July 2025)	ATO lists interest on money borrowed for tax obligations as a common operating expense
Flexibility	ATO may review plan if you default	Set by the loan contract
ATO relationship	Debt remains with the ATO	ATO debt cleared

Which costs fewer dollars?

That’s the calculation to do with your accountant. Estimate:

• Plan cost: GIC over the life of the plan on the reducing balance (no tax deduction).
• Loan cost: fixed fees + time-based cost to your realistic exit month, less the tax benefit of any deductible portion.

The comparison isn’t only about price. A loan may cost more in raw dollars but clear the ATO debt, which can matter if you’re planning a bank refinance or want to limit personal exposure. If you’d like a loan option priced in dollars to set against the plan, start a 60-second enquiry — enquiring doesn’t touch your credit file.

Why does the type of tax debt matter to directors?

The ATO’s director penalty regime can make company directors personally liable for unpaid PAYG withholding, GST and super guarantee charge. If your tax debt includes those, the stakes are personal as well as corporate. Clearing them promptly — through a plan the business can genuinely keep to, or a loan with a real exit — reduces that risk. Talk to your accountant about your specific exposure.

When is a loan clearly the better tool?

• The debt is above the online plan limit and you want certainty rather than negotiating instalments.
• You have property equity and a clear exit within months (a sale, a refund, a seasonal peak).
• You’re preparing for a bank refinance and want the ATO debt gone first — see refinance to a bank loan.
• The ATO debt is part of a wider mess that needs consolidating into one facility.

When is a payment plan the better tool?

• The debt is modest and comfortably repayable from trading within the plan period.
• You don’t have security and an unsecured loan would add strain.
• You’d otherwise be stacking a new loan on top of existing short-term debt (see avoiding debt stacking).

Plan around the next due date

Quarterly BAS falls due on 28 October, 28 February, 28 April and 28 July, according to the ATO. Our BAS due dates guide shows how to plan cash around each one so the next bill doesn’t become the next crisis.

What should you have ready to decide?

Before you and your accountant weigh the two options, gather:

• your ATO integrated client account statement showing what’s owed and what type of debt it is (income tax, GST, PAYG withholding, super guarantee charge);
• any existing payment plan terms and whether you’ve kept to them;
• a 12-month cash flow forecast showing how quickly the debt could be repaid from trading;
• details of property you or the business own, and what’s owed on it;
• a list of other business debts, especially any short-term facilities.

With those in hand, the question becomes practical rather than anxious: which option clears the tax with the fewest dollars and the least risk, given how quickly the business can repay?

Compare your options properly

Tell us about the tax bill — amount, type of debt, whether you’re on a plan and what property you own. A lending specialist will set out the dollar cost of a loan so you and your accountant can compare it fairly with an ATO plan. Asking doesn’t involve a credit check, and your details aren’t passed to other lenders. Please include any existing ATO arrangement on the form; it changes which options fit.