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What is a tax debt loan?

Tax debt loans are used by businesses to repay overdue tax to the Australian Taxation Office (ATO) when a payment plan is either unavailable or unsuitable.

If you own a business or operate as a sole trader, you are required to submit an end-of-year tax return, and not paying your tax can damage your credit score.

If you don't have funds available to pay, the ATO offers payment plans for tax debt up to $100,000. Where the amount owed is greater, or a payment plan is unsuitable, businesses can use various types of short-term business finance to repay the debt.

Here's what a tax debt loan can offer:

  • Borrow from $5,000 to $1million
  • Terms from one month to five years
  • Simple application and approval
  • Fixed or variable interest rates
  • Loan can be secured or unsecured
  • Interest rate tailored to you
  • Lenders will consider the reason for the tax debt

Who's eligible for a tax debt loan?

  • Own a business and have an ABN
  • Business is GST-registered
  • Australian citizen or permanent resident
  • Minimum business-operating time of six months
  • Can provide business bank statements to demonstrate capacity to repay the loan (based on revenue)
  • The tax debt is not due a fundamental issue with your business

Types of tax debt that can be financed with a loan

Lenders assess loan applications based on the risk level of the borrower. There are various reasons you may find yourself with significant tax debt to repay, and the cause for your debt may affect how lenders assess your application. For example:


Accounting error

If your tax debt is the result of an accounting error, lenders may look on your situation favourably if the error is a random, one-off occurrence and not reflective of your reliability as a business owner.


Capital Gains Tax bill

If your tax debt is due to Capital Gains Tax (CGT), lenders are more likely to approve a tax-debt loan as the situation is often a one-off occurrence caused by higher than expected growth and generally not reflective of your risk as a borrower.


Failure to lodge tax return

If your tax debt is the result of not lodging your return, lenders may consider you a high-risk borrower due to concerns of reliability in repaying the loan amount.

Of course, there may be alternatives available for accessing short-term business finance to repay the tax debt, including invoice finance, or tapping into a business line of credit or business overdraft.

How to choose a business loan for tax debt?

There are different kind of loans that can be used to pay off tax debt. Each has its own features, advantages and disadvantages, and the one that will be best suited will depend on the business applying for the finance and its level of tax debt.

The main options...

Short-term secured loan

These are often used by businesses to cover sudden expenses - such as a tax debt. However, you can also short-term secured business loans for various purposes, such as paying employees, securing stock, settling unpaid bills and covering day-to-day operating expenses

Repayment terms are often flexible to suit the borrower and, If you are applying for less than $150,000, non-bank lenders may offer same-day approval when applying online.


Unsecured business loan

Unsecured business loans can be used to repay your ATO debt without risking your personal or business assets. Interest rates will typically be higher than secured finance and the loan term is usually shorter.

With an unsecured business loan, lenders will assess your ability to repay the loan based factors such as on your business cash flow, turnover and credit history. If you are self-employed, you may be asked to provide a personal guarantee.


Invoice finance

Invoice finance could be used to repay your ATO debt if you operate a business that invoices its customers. Invoice finance is not a loan but an advance of cash on your business invoices, you won’t be paying high rates of interest as you would on an unsecured business loan. However, fees will apply.

Invoice finance offers unique benefits over standard loans, including fast approval, no repayments as the finance is not a loan, no interest to repay (fees do apply though).

Who offers tax debt loans for businesses?

It may be possible to get finance for a tax debt from a bank, credit union, online or specialist lender.

Most lenders will provide finance to eligible business for any legitimate business purpose, including providing funds to pay creditors.

However, given the nature why the business is applying for finance, some mainstream lenders (e.g. major banks) may be reluctant to approve tax debt loans. For this reason many businesses seek finance from specialist lenders.

Just bear in mind that these lenders generally charge higher interest rates (compared to a loan to finance an asset, for example).

Lodging your tax return and BAS with the ATO

Businesses in Australia are required to lodge an end-of-year tax return. However, it is more likely that a Business Activity Statement (BAS) will be the reason small businesses seek loans to repay tax debt.

Businesses are required to lodge their BAS with the ATO at various frequencies, depending on their GST turnover:

  • Quarterly - If GST turnover is below $20 million
  • Monthly - If GST turnover is $20 million or higher
  • Annually - If you are voluntarily registered for GST, and your GST turnover is less than $75,000

The majority of businesses will lodge their BAS quarterly. The ATO provides specific due dates for lodging your BAS, and failing to lodge your BAS may incur a penalty.

Quarterly dates for lodging BAS Quarter ending 30 September: 28 October Quarter ending 31 December: 28 February Quarter ending 31 March: 28 April Quarter ending 30 June: 28 July

What to do if you can’t pay your business tax

If your business has a large tax debt that you can't pay, you should first call the ATO to see if you can arrange a payment plan.

A pragmatic approach to the situation is often the best way to avoid ongoing debt and maintain a healthy credit score.

Business owners who contact the ATO to manage their tax debts are often looked upon favourably, and setting up a payment plan ensures tax debt information is not reported to credit bureaus.

Interest-free tax repayment options

The ATO offers an interest-free repayment solution to small businesses in certain situations. The small business must be able to clear its tax debt within 12 months, and eligibility is dependent on specific conditions:

  • Annual turnover of less than $2 million
  • Recent business activity statement (BAS) debt of $50,000 or less
  • Overdue BAS debt does not exceed 12 months
  • Maximum of one payment plan default in the previous 12 months
  • Clean history of lodging BAS with the ATO
  • Does not qualify for business finance to cover the debt
  • Business turnover indicates continued revenue and capability in repaying the debt
  • To apply for an interest-free payment plan, you will need to contact the ATO directly.

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Business tax debt loans FAQ

Not paying your business tax can negatively impact your business credit score. The Australian Taxation Office (ATO) may disclose a business's tax debt information to credit bureaus, which can affect a business's credit rating and make it harder to gain approval on finance in the future. Even if you can access credit in future, a poor credit score could mean

The ATO is likely to refer business tax debts to creditors in the following situations:

  • The tax debt is greater than $100,000 and has remained unpaid for over 90 days
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  • The business is not in the process of disputing the tax debt
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  • The business has not arranged a payment plan with the ATO

If a business does not meet the above reporting criteria, the ATO will often contact the business and provide a notice period of 28 days before reporting its tax debt.

If your business is registered for GST, or you are personally registered for GST and operating as a sole trader, then you will need to lodge a BAS with the ATO. The frequency you are required to lodge your BAS will depend on the GST turnover of your business.

GST turnover is defined as your total business income. This is calculated as your total gross income, minus any GST included in sales to customers and sales made outside of Australia.

If your business generates an annual GST turnover of less than $20 million, you will be required to lodge a BAS with the ATO each quarter. Your yearly tax return will need to be lodged by 31 October following the end of the previous financial year (1 July - 30 June).

Will the ATO penalise me if I can’t pay my tax debt? If you cannot pay your tax debt, you need to contact the ATO. Avoiding your tax or BAS obligations will only incur penalties, and possibly cause the ATO to refer your debt to a credit agency. If you contact the ATO as soon as possible, they will work with you to establish a payment plan, which in some cases may be interest-free.

Does tax debt affect your credit score in Australia? Yes, if you don't repay your tax debt, the ATO may disclose this to credit reporting bureaus. This would have a negative impact on your credit score and could impact your business' ability to access credit in future.

If you cannot pay your tax debt, you need to contact the ATO. Avoiding your tax or BAS obligations will only incur penalties, and possibly cause the ATO to refer your debt to a credit agency. If you contact the ATO as soon as possible, they will work with you to establish a payment plan, which in some cases may be interest-free.

Yes, if you don't repay your tax debt, the ATO may disclose this to credit reporting bureaus. This would have a negative impact on your credit score and could impact your business' ability to access credit in future.

The application process for a small business loan is typically faster with a specialist lender than with a bank lender. That’s because specialist online lenders have less stringent eligibility criteria and use technology to assess your business information, credit report, and bank transactions.

No, you generally don't need an upfront deposit for a business loan. But, there are instances when a lender may require a 10-20% deposit. This usually applies if your business has been trading for less than two years or if you don't own property and want to borrow more than $150,000.

It's important to note that a deposit is not the same as security (collateral), and you must provide collateral if applying for a secured business loan.

New businesses or startups can apply for a business loan, but typically face higher interest rates to offset the lender’s risk of financing a business with little or no trading history.

Remember that you must still be able to provide financial documentation showing you can service the loan in full. Alternatively, some lenders may request work contracts as proof of ongoing work to assess your loan serviceability.

Newer businesses generally need finance to plug gaps in their cash flow and help get their business off the ground.

Yes, you can still qualify for a business loan if you have a poor credit rating (or no credit rating), although it will likely need to be through a specialist lender. Bad credit business loans are similar to standard unsecured loans but usually feature higher interest rates.

In most cases, lenders will allow you to repay your loan early, although early termination fees may apply. If you plan on repaying your loan amount early to reduce your interest payable, check with your lender up-front whether you’ll incur fees or penalties for doing so.

Make sure that early termination fees on a business loan don't offset the interest savings you’d make by paying off the loan sooner.

Yes, you can generally refinance your business loan, although early termination fees may apply. Refinancing involves paying off your current business loan with a new one. You can refinance by getting a new loan from another lender or by switching your current loan with your current lender.

According to CPA Australia, common reasons why a business may choose to refinance include:

  • To get a lower interest rate
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  • To borrow more money
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  • To consolidate debts

Be sure to check that the fees you’d pay in the refinancing process don’t cancel out the benefit (e.g. getting a lower interest rate) of refinancing in the first place.

There are a few reasons you may be declined for a small business loan, including:

  • Your business financials don’t reflect your ability to service the loan amount.
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  • A business owner or director has bad credit or there’s no active credit history.
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  • Your business revenue is too dependent on a small number of customers.
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  • The outlook for your market sector or industry is poor.
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  • Your business hasn’t been operating for long enough.
Sean Callery Editor Money.com.au

Written by

Sean Callery

Sean Callery is the Editor of Money.com.au. He has over 15 years of international experience. He is qualified with a Certificate IV in Finance and Mortgage Broking (FNS40821) and is compliant to provide general advice in Tier 1 General Insurance (RG 146) products.

Shaun McGowan Money.com.au founder

Reviewed by

Shaun McGowan

Shaun McGowan is the founder of Money.com.au. He's determined to help people and businesses pay as little as possible for financial products, through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.


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