ATO Tax Debt Is Now Hurting Loan Approvals - Here's What Borrowers Need to Know
- Business Insights
- Jul 1
- 3 min read
Updated: Jul 29
The Australian Tax Office (ATO) has started reporting overdue business tax debt to credit reporting agencies like Equifax and CreditorWatch. If the debt is more than 90 days overdue and you haven’t worked out a payment plan with the ATO, it can be recorded as a credit default, even if you’ve never missed a loan repayment.
This can make it harder to get approved for funding with major banks or traditional lenders, and may push you toward non-bank or private lenders who charge much higher interest — sometimes 3–5% above standard rates, or higher.
From July 2025, ATO Interest Charges Will Lose Tax Deductibility
From 1 July 2025, holding ATO debt will become very expensive because ATO interest charges will no longer be tax deductible, even if the debt relates to income from business activities.
With the ATO’s General Interest Charge currently around 11%, this means that business owners will be paying double-digit interest with no tax offset. Compared to business loans or lines of credit, ATO debt will soon become one of the most expensive forms of funding.
This policy shift is part of a broader government move to stop businesses from using the ATO as a “lender of last resort.” Instead, the smart thing to do is to refinance tax debt through commercial lending solutions, where interest may remain tax-deductible if used for working capital or business growth.
How to Refinance ATO Tax Debt Without Damaging Credit
If your business has a sizeable ATO tax debt, refinancing through a business loan can be a smart way to take control before things get worse. It can help protect your business credit score, give you access to better finance options, keep your interest payments tax-deductible, and avoid the high interest charges the ATO is known for.
Working with the right commercial lender or business finance broker means you can deal with the tax debt properly without putting your business at risk.
But timing matters. Acting early can lower your funding costs, improve your borrowing power, and protect your credit file from damage. This is a much better option than waiting until cash flow becomes tight — only to find out the ATO has listed a credit default against your business or even you as a director. At that stage, many business owners are forced to turn to high-interest lenders just to clear the ATO debt and keep their business going.
That’s a risky and expensive path, and one that can be avoided with the right finance advice and early action.
How We Can Unlock Creative Solutions for ATO Debt
If your business is dealing with ATO tax debt, a smart move is to speak with an experienced commercial finance broker who can help you explore creative funding solutions that traditional banks often can't offer.
In some cases, non-bank lenders are open to pre-approving a business loan at a competitive (prime) interest rate to clear the tax debt on the condition that the ATO agrees to remove any credit defaults listed against the business or its directors. This gives you, or your accountant, the opportunity to present the conditional offer to the ATO as part of a negotiated arrangement to remove the default and facilitate repayment.
Once the default on the credit file is removed, the loan can be formally approved and drawn down, allowing the ATO debt to be repaid at a significantly lower interest rate than would otherwise apply if the credit default remained in place. This strategy can help preserve your business’s access to affordable finance and avoid the long-term costs of impaired credit.
These types of loans aren’t always easy to find without expert help. A skilled broker can connect you with lenders who understand ATO debt scenarios, structure the right deal, and help you ensure your credit file stays protected.
The key is acting early. With the right plan and the right finance partner, you can stay ahead of the problem, avoid costly ATO interest, and secure your business’s financial future before credit issues limit your options.
Disclaimer: This article is for general information purposes only and does not constitute financial advice. While we have made every effort to ensure accuracy, we cannot guarantee the completeness or currency of the information provided. You should consider your personal circumstances and seek professional advice before making any financial decisions. We accept no liability for any loss or damage that may arise from reliance on the information anywhere on this website.
