For thousands of Australian businesses, the end of the financial year is less a tax exercise and more a cash flow squeeze. BAS, super, income tax, supplier bills and EOFY expenses all seem to land at once, and if the money is tight, an ATO tax debt is often what gets left behind. If that is you, take a breath. Owing the tax office is far more common than people admit, and it usually says more about timing than about how well your business is run.
Here is what has changed, though, and why it matters right now. Since 1 July 2025, the interest the ATO charges on overdue debts is no longer tax deductible, which means carrying an ATO tax debt costs your business more than it used to. With the new financial year about to tick over, this is exactly the moment to get on top of it. As an accredited finance broker, not your accountant, we will lay out your options in plain English, then you confirm the tax detail with a registered tax agent.
Here are six smart ways to clear or manage your ATO tax debt before 30 June.
Why ATO Tax Debt Is More Expensive Than It Used to Be
This is the change every business owner needs to understand. The ATO applies what it calls the general interest charge, or GIC, to any tax that stays unpaid past its due date. The rate is currently above 11 per cent and it compounds daily, which already makes it a fairly expensive way to borrow.
Until recently, at least you could claim that interest as a tax deduction, which softened the blow. Not anymore. As the ATO has confirmed, GIC incurred on or after 1 July 2025 can no longer be claimed as a deduction, and the same applies to the shortfall interest charge. In plain terms, the after-tax cost of carrying an ATO tax debt has jumped, because you are now paying that daily compounding interest with money you cannot write off. Every week you let the debt sit is more expensive than it would have been a year ago, which flips the maths on whether it is smarter to clear the debt or carry it.
What the New Rules Cost You: An Example
Put a number on it and the change lands harder. Say your business is carrying a $50,000 ATO tax debt. At a general interest charge above 11 per cent compounding daily, that is roughly $5,500 or more in interest over a year. Under the old rules you could at least claim that interest as a deduction, clawing back a chunk at your tax rate. Now you cannot, so the full cost comes straight out of your pocket with no offset.
That is the part that reframes the decision. A structured business loan or a line of credit at a comparable or lower rate, where the interest may be deductible as a genuine business expense, can now stack up better than leaving the money with the ATO. It will not be the right answer for everyone, and your accountant should run your specific numbers, but the change to deductibility has quietly made financing an ATO tax debt far more competitive than it used to be.
The EOFY Cash Crunch Is Real
The timing makes it worse. EOFY is when obligations pile up, with quarterly BAS, superannuation guarantee payments, income tax and the usual run of supplier and wage costs all converging. For a business already watching its cash flow, that convergence is what tips a manageable position into an ATO tax debt. Tax debt is so common that Australian small businesses collectively owe the tax office tens of billions of dollars, so if you are in this boat, you are in very large company.
It is also worth knowing that the ATO has become more active in chasing outstanding debts, and the consequences of ignoring one can escalate. For company directors in particular, unpaid amounts such as PAYG withholding, super and GST can, through a director penalty notice, become a personal liability rather than just a company one. That is not meant to scare you, but it is a strong reason to deal with an ATO tax debt rather than hope it goes away. If you are in genuine difficulty, the Australian Small Business and Family Enterprise Ombudsman offers free guidance, and the ATO itself has support options for businesses doing it tough.
How Businesses End Up Owing the ATO
Understanding how an ATO tax debt builds up helps you avoid the next one, because it is rarely down to carelessness. Far more often it is simply the rhythm of running a business. Cash flow timing is the big culprit: GST and PAYG are collected through the year but fall due in lumps, and if that cash has been spent covering wages, stock or a slow patch, the bill arrives without the money set aside to meet it.
Growth causes it too. Taking on a big new contract often means paying for staff, materials and stock well before you get paid, and the tax on the eventual profit can land while the cash is still tied up in the job. Add slow-paying customers, an unexpected cost or a quiet quarter, and an ATO tax debt can appear in an otherwise healthy business. None of that makes you a poor operator. It makes you a normal one, which is exactly why so many Australian businesses carry tax debt at any given time.
6 Smart Ways to Clear or Manage Your ATO Tax Debt
There is no single right answer here, because the best move depends on how much you owe, your cash flow and your trading position. Here are the six options worth weighing up, roughly from simplest to most involved.
1. Pay It Down as Fast as You Can
If you have the cash, paying the debt down quickly is almost always the cheapest option, precisely because that daily compounding interest is no longer deductible. Even a partial payment reduces the balance the interest is calculated on. Before you tie up every spare dollar, though, make sure you keep enough working capital to keep the business running, because swapping an ATO tax debt for an inability to pay your staff is no win at all.
2. Set Up an ATO Payment Plan
If you cannot pay in full, the ATO will often let you arrange a payment plan to spread the debt over time. It is a sensible first port of call and can take the immediate pressure off. The catch worth understanding is that interest generally keeps accruing on the outstanding balance while you are on the plan, so the ATO itself suggests keeping the plan over the shortest timeframe you can manage. A payment plan eases the cash crunch, but it does not make the debt cheaper, which is where the financing options below can sometimes do better.
3. Free Up Cash With Invoice Finance
If your ATO tax debt exists mainly because your customers are slow to pay, the cash to clear it may already be sitting in your debtor ledger. Invoice finance lets you advance a large chunk of the value of your unpaid invoices as soon as you raise them, rather than waiting 30, 60 or 90 days to be paid. That can free up the funds to clear the tax office without taking on a conventional loan. Our guide to invoice finance walks through how it works and who it suits.
4. Use a Business Line of Credit for Flexibility
A business line of credit gives you a pre-approved limit you can draw on as needed and only pay interest on what you use, which makes it a flexible tool for smoothing out the lumpy cash flow that creates an ATO tax debt in the first place. It is well suited to businesses with seasonal or uneven income. You can read more on our business line of credit page, and our overview of cashflow finance covers the broader options.
5. Refinance the Debt Into a Structured Business Loan
This is the one that often surprises people. Specialist non-bank lenders offer what is sometimes called ATO debt finance, which essentially consolidates your ATO tax debt into a structured business loan with set repayments. Done right, this can work out cheaper than carrying the non-deductible GIC, while giving you a clear, predictable repayment schedule and getting the tax office off your back. Banks usually shy away the moment they see tax arrears, but the specialist market does not, which is the gap we help businesses bridge. Our piece on what to do when the bank says no explains how that part of the market works.
6. Plan Ahead So It Does Not Happen Again
The best fix is preventing the next one. The ATO’s own advice is to set aside your GST, PAYG withholding and super as the money comes in, ideally in a separate account, so the funds are there when the bill falls due. Pair that with a working capital facility on standby, and a future ATO tax debt becomes far less likely. It is the least glamorous tip on the list and quietly the most valuable.
What Happens If You Leave It
Beyond the daily interest, an unpaid ATO tax debt can escalate in ways that hurt well beyond the balance itself. The ATO can issue payment demands, apply a garnishee notice that redirects money owed to you by your customers or your bank, and for company directors, pursue personal liability through a director penalty notice for unpaid PAYG withholding, super and GST.
There is also a quieter risk that catches businesses off guard. The ATO can, in certain circumstances, disclose larger overdue business tax debts to credit reporting bureaus. Once that happens, your business credit profile takes a hit, which can make finance harder and dearer to get at the very moment you need it most. In other words, an ignored ATO tax debt can quietly close the doors you might otherwise rely on to fix it, which is the strongest argument of all for dealing with it early rather than late.
Should You Finance Your ATO Tax Debt?
Financing is a genuinely useful tool, but it is not the automatic answer, so be honest with yourself about which situation you are in. Financing an ATO tax debt tends to make sense when your business is fundamentally sound, the debt is a timing issue rather than a sign of deeper trouble, and a structured repayment at a sensible cost beats paying non-deductible interest that compounds daily. In that case, swapping the tax office for a lender with a clear schedule can genuinely improve your position.
It makes less sense if the underlying problem is that the business is not generating enough to cover its obligations, because more debt will only deepen the hole. In that situation, the smarter first moves are an honest conversation with your accountant, a payment plan or remission request with the ATO, and free support through the Small Business Ombudsman. As an accredited finance broker bound by a Best Interest Duty, we would always rather point you to the right help than write finance that does not suit you. Where finance is the right fit, we compare options across our lender panel, all subject to lender approval. It is also worth a look at our warning about borrowing page before taking on any new commitment.
Final Thoughts
An ATO tax debt is not a moral failing, it is a cash flow problem, and cash flow problems have solutions. What has changed is the cost of doing nothing: with the interest no longer deductible and compounding daily, sitting on the debt is the most expensive option of all. EOFY is the natural prompt to deal with it, whether that means paying it down, arranging a payment plan, freeing up cash from your invoices, or refinancing it into something structured and predictable.
Work out which of the six paths fits your situation, lean on your accountant for the tax side, and if finance is part of the answer, we can help you compare your options across our lender panel before the new financial year rolls in. The sooner you act, the less it costs.
Disclaimer
Get A Loan Finance Pty Ltd is an accredited finance broker, not a lender, an accountant or a registered tax agent. The tax information in this article is general in nature, reflects rules and rates in force at the time of writing, and does not take into account your objectives, financial situation or needs. Tax rules, interest rates and your individual circumstances vary, so you must confirm how they apply to you with a registered tax agent before acting.
We work with a panel of lenders and finance providers. Product features, eligibility criteria and availability can change without notice, and all finance is subject to lender approval.
