ATO payment plan vs business loan: an honest comparison

“Should I just go on a plan with the ATO, or borrow and be done with it?” We hear this question more than almost any other, and the honest answer is that it depends. Sometimes the plan is clearly better and we’ll say so. This page sets out how to compare the two fairly, what changed on 1 July 2025, and the situations where a short-term property loan comes out ahead.

Is an ATO payment plan cheaper than a loan?

Not automatically, and not automatically the other way either. Here’s how the two compare on the things that actually drive cost and risk.

	ATO payment plan	Short-term property loan
Interest	GIC, calculated daily on a compounding basis on the overdue amount	Priced on the loan’s own facts: equity, title position, term and exit
Tax deduction for the interest	None for GIC incurred on or after 1 July 2025	Depends on your circumstances, so ask your tax agent
Setting it up	Online for debts of $200,000 or less; a phone call with financial details above that	A valuation, loan documents and signatures, with establishment, valuation and legal costs
How long it runs	Often months to a couple of years	Measured in months, with a planned exit
What ends it early	A missed lodgement or new unpaid debt can default the plan	Repaid in one go from a sale, refinance or receipt
Effect on ATO action	An active plan you keep to counts as engaging	The debt is gone, so there’s nothing to act on

The fair comparison is total dollars over the expected time. For the plan, that’s the GIC that will build up over its full length, which the ATO or your agent can estimate. For a loan, it’s every fee plus interest over the term you realistically expect, in a written quote. Our page on what short-term loans cost explains each fee.

As a rule of thumb, a plan tends to be cheaper when it’s short and affordable. A loan tends to be cheaper when the plan would be long, especially now that GIC can’t be deducted.

Is ATO interest (GIC) still tax deductible?

No, not for new interest. The ATO says GIC incurred on or after 1 July 2025 “can’t be claimed as a deduction”. The rule applies whatever income year the underlying debt relates to, and it covers shortfall interest charge (SIC) as well. GIC incurred before 1 July 2025 stays deductible in the year it was incurred.

Before the change, part of the cost of a long plan came back at tax time. Now every dollar of GIC is a full after-tax cost. The ATO’s own reminder about the change suggests owners talk to their accountant or finance provider about “alternative methods of funding payment of tax debts”. It also says anyone considering third-party finance should discuss the tax implications with a registered tax agent. That’s good advice, and a short conversation.

When will the ATO refuse a payment plan?

The ATO is open about the fact that a plan isn’t guaranteed. It says it considers many factors and that you “may not be eligible for a payment plan on the terms you suggest or at all”. From its published guidance, these are the pressure points:

• Size. Debts of $200,000 or less may be set up online. Above that, it’s a phone call, and the ATO asks about your accounts, any credit lines, what comes in, what goes out and what you own.
• Length. Needing more than two years is a reason to speak to the ATO rather than self-serve.
• Keeping up. Late lodgements, or new debts left unpaid, can tip a plan into default, and then the whole overdue balance falls due at once.
• Multiple accounts. Each account with an overdue debt needs to be paid or put on its own plan.

If the form shows real equity or unused credit, expect to be asked why it isn’t being used to pay down the debt, and have your answer ready.

When does borrowing to pay the ATO make sense?

Usually when one or more of these is true:

1. The plan would be long. Years of non-deductible, daily-compounding GIC add up.
2. The ATO won’t agree to terms you can meet. A plan you’ll default on isn’t a plan.
3. Firmer action is already under way. A garnishee notice, a director penalty notice or a credit-reporting notice changes the maths, because the cost of not paying is no longer just interest.
4. There’s a clear exit within months. That could be a property sale, a bank refinance once your tax account is clean, or a large receivable.

And it doesn’t make sense when the business is spending more than it earns. Then a loan only moves the problem onto your property. That’s the time for your accountant or adviser to look at restructuring options. For a sound business with a tax bill that got ahead of it, though, using equity to pay the ATO can be cheaper and calmer than years on a plan.

Illustrative example (round numbers, not a real client). A Hobart building company owes the ATO $260,000. Because the debt is above $200,000, the ATO wants full financials before agreeing to anything, and the instalments the owners can afford would take about three years. The directors also own an investment unit in Adelaide, worth about $600k with $200k owing, that they planned to sell next year anyway. They bring the sale forward. In the meantime, a short-term registered second mortgage over the Adelaide unit pays the ATO in full within the week. The unit sells four months later and repays the loan. They pay four months of loan costs instead of three years of non-deductible GIC, and the ATO account is clear from week one.

Can you refinance an ATO payment plan with a property loan?

Yes. Paying a plan out early is allowed, and it’s one of the cleaner reasons to borrow, because the debt and the exit are both known:

• Property in Victoria: we write a caveat loan behind your existing lender.
• Property in any other state or territory: we use a short-term registered second mortgage, which normally moves at the same pace.
• Property owned outright: a short-term first mortgage.

Ask the ATO for a payout figure that runs to your settlement date. At settlement, the funds go straight to the ATO with your payment reference number, and then you make sure the plan’s debits stop. If a sale is what will repay the loan, our guide to clearing an ATO plan before a property sale covers the timing. For a quick sense of your equity, try the borrowing calculator. When you’d like real numbers, ask us for a quote you can set against the plan.

Put both options side by side — see if you qualify

We’d rather you choose the cheaper path, even when that path is a plan. If borrowing does stack up, we fund tax debts all the time and we don’t shy away from them. The enquiry takes about 60 seconds, there’s no credit check when you first enquire, and your details come to us as the lender rather than being circulated to a crowd of lenders. A real person works through your numbers and calls you.

Please fill the form in accurately, especially where the property is, what you owe the ATO and whether a plan is already running. That way the comparison we give you is a real one.

Compare your options with us →