How do you sort out ATO debt before the end of the year?
Get on top of it now, because carrying ATO debt costs more than it used to. The interest the ATO charges is no longer tax deductible, and enforcement has sharpened. A business loan or line of credit can pay it out or restructure it, often on your bank statements alone.
Short answer: deal with it now, while you have options and before the summer slowdown. Here is what has quietly changed. The interest the ATO charges on a debt is no longer tax deductible. So carrying a balance costs more than it did a year ago. At the same time, the ATO has got noticeably firmer about chasing what it is owed. The good news is that ATO debt is one of the more solvable problems a business has. You do not have to clear it out of cash flow to fix it. A business loan or a line of credit can pay it out or restructure it, often on your bank statements alone. Between them, your accountant and a broker can have it sorted well before the year is out.
Why is ATO debt more expensive to carry now?
Short answer: because the interest is no longer deductible. The general interest charge the ATO adds to an overdue balance used to be claimable at tax time. For interest incurred on or after 1 July 2025 it is not. So every dollar of ATO interest now hits your after-tax pocket, which makes letting a balance sit there a more expensive habit than it used to be.
This is the change a lot of owners have not caught up with yet. The ATO’s own position is clear: interest charges incurred on or after that date can no longer be claimed as a deduction. You can read the detail on the ATO’s own page about it. Interest on a business loan taken for business purposes, by contrast, is commonly deductible. So moving the debt can change the after-tax cost as well as the cash flow. That is a conversation for your accountant, and it is a big part of why paying ATO debt out with finance is worth a look.
What happens if you just leave ATO debt sitting there?
Short answer: it grows, and it can get personal. The balance keeps climbing with non-deductible interest, and the ATO has sharpened its enforcement. For company directors, unpaid amounts can end up as a personal liability through a director penalty notice. Treating the business account like a personal bank account is exactly what turns a cash-flow wobble into a bigger problem.
The ATO is a lot more active than it was through the quieter years, when a fair few businesses effectively used it as an interest-free overdraft. Those days are over. Director penalty notices, scrutiny of director loans, firm deadlines: they are all part of the picture now. The detail of all that, the restructures, the Div 7A loans, the lodgement timing, is your accountant’s domain. A good one is worth their weight here. Our job sits beside theirs: getting the finance in place so the debt can actually be cleared or restructured rather than left to grow.
ATO debt is one of the few business problems you can usually solve with a phone call and a plan, rather than out of next month’s cash flow.
Can a business loan actually pay out ATO debt?
Short answer: yes. A business loan can pay the ATO out in full, which stops the daily interest and leaves you with one set repayment you can plan around. You do not need to clear the ATO first to qualify, because the loan is what clears it. For many businesses trading twelve months or more, it can be assessed on bank statements rather than full financials.
This is the part that surprises people. You do not have to get square with the ATO before you can get finance. The loan pays the ATO out, the daily charge stops, and the debt becomes a normal business repayment. And for a business with a reasonable trading history, a lot of this can be done on bank statements rather than a pile of paperwork. We go through how that assessment works in our guide to business lending on bank statements. The ATO-payout path itself is in our guide to paying out ATO debt with a business loan.
Will paying out the ATO actually stop the daily interest?
Short answer: yes. Once the ATO balance is paid out in full, the general interest charge on it stops, because there is no longer an ATO debt accruing it. You swap a non-deductible, daily-ticking charge for a normal business repayment. That swap is the whole point, and with the ATO interest no longer deductible it matters more than it used to.
The daily charge only runs while the ATO is owed money. Clear the balance and it stops. From there you are dealing with one repayment on terms you chose, not a figure that grows every day in the background. For a business that has been watching an ATO balance creep up, that alone is a weight off.
What about a line of credit instead?
Short answer: a line of credit is the flexible version. Rather than one lump payout, it gives you a facility to draw on for the ATO, a BAS, suppliers or wages, and you pay interest only on what you use. For a business with lumpy or seasonal cash flow, it can be a better fit than a fixed loan, and it keeps a buffer there for the next bill.
Plenty of businesses would rather have the flexibility than a single payout, especially heading into a quieter stretch over summer. A line of credit sits ready, so a BAS or an ATO bill does not become a scramble. We cover that setup in our guide to using a line of credit for the ATO, a BAS and suppliers. Which one suits, a term loan or a line of credit, comes down to how your cash flow actually moves. That is part of what we work out with you.
Why sort it before the end of the year?
Short answer: because the cost of carrying it is non-deductible and ticking, and summer is the worst time to be caught short. Deal with it now and you go into the new year with one clean repayment instead of a growing balance. You are also not trying to arrange finance while everyone is on leave. It is simply a good moment to tidy it up.
There is no cliff edge forcing your hand, and we are not going to invent one. It is just that the debt costs more to hold than it used to, and the quiet season is coming. A problem sorted in November is a far calmer thing than one left to build into February. Getting on top of it now is the kind of move that makes the whole next year run better.
Sorting it out, step by step
- Get your accountant across the position. They will know your balance, your lodgements and whether anything like a restructure is even on the table.
- Work out the real cost of carrying it. With the interest now non-deductible, that number is bigger than it looks on the statement.
- Choose the finance that fits. A term loan to pay it out clean, or a line of credit for flexibility. We match it to how your cash flow moves.
- Let the finance do the clearing. You do not clear the ATO first. The facility pays it out, and the daily charge stops.
- Go into the new year clean. One planned repayment, a buffer for the next bill, and the ATO off your back.
From the broker’s desk: ATO debt is one of the most common things businesses come to us about, and it is also one of the most fixable. The thing that has changed is the cost of ignoring it, now that the interest is non-deductible and the ATO is chasing harder. Your accountant handles the tax and compliance side, and a good one is gold. We handle the finance: a business loan or a line of credit to pay the ATO out or restructure it, often on your bank statements. It becomes one manageable repayment instead of a growing worry. If an ATO balance is hanging over the business, send it our way. Have a look at our ATO debt page or just get in touch, and we will tell you honestly what your options are.
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Start with a chatThis guide is general information for the Australian market, not advice about your situation. Lender credit policy changes, and what applies to you depends on your circumstances. Pilbara Finance is a credit representative (478535) of Mortgage Specialists Pty Ltd, Australian Credit Licence 387025.