In short
For a small, short-lived ATO debt, a payment plan usually wins: it's quick to set up online for debts of $200,000 or less and needs no security. For a larger or longer debt, a business loan often wins, because GIC incurred since 1 July 2025 compounds daily, keeps running on plans and is no longer tax deductible, while business loan interest generally is. A loan also removes the risk of the debt being reported to credit bureaus.
At a glance
- No tax deduction is available for GIC or SIC that accrues on or after 1 July 2025.
- Debts of $200,000 or less can go on a self-serve ATO plan; larger ones need a phone call.
- Plans keep accruing daily-compounding GIC and can default if new lodgements or payments slip.
- Unmanaged business tax debts of $100,000+ overdue 90+ days can be reported to credit bureaus.
- Compare the after-tax cost in dollars over the same period before choosing.
An ATO debt is any tax, GST, PAYG withholding or super guarantee amount your business owes the tax office past its due date. There are two mainstream ways to deal with one: pay it off in instalments under an ATO payment plan, or pay it out in full with money borrowed from a lender. Both are legitimate. Since 1 July 2025 the balance between them has shifted.
Here’s our head-to-head verdict, the rules behind it, and a dollars-first way to decide for your own debt.
The short verdict
Payment plan wins for smaller debts you can clear within a few months, when you don’t have security to offer, or when you need breathing room today.
Business loan wins for larger debts or longer repayment periods, when you have property or strong trading to borrow against, and when credit reporting or firmer ATO action is on the horizon.
Check before you choose: the after-tax cost of each option over the same period, in dollars.
What changed that tips the balance?
Three rule changes and one shift in tone.
- GIC lost its deduction. The ATO confirms that general interest charge and shortfall interest charge arising on or after 1 July 2025 are no longer allowable as an income tax deduction. Before then, the deduction trimmed the real cost of a plan.
- GIC never stopped on plans. The ATO says debts on a payment plan keep accruing GIC, which compounds daily.
- Credit reporting applies. Once a business owes at least $100,000 that is more than 90 days late, and the owner has stopped dealing with the ATO, credit bureaus can be told about it.
- Collection has firmed. The Reserve Bank’s latest Financial Stability Review (October 2026) observes that the ATO has gone back to collecting debts after a stretch of temporary relief, and the ATO has said businesses ignoring reminders face director penalty notices, garnishees and faster escalation.
The size of the issue is large. An ANAO performance audit counted about 1.34 million small businesses with collectable tax debt in 2024–25, owing $35.9 billion between them.
How does an ATO payment plan work in 2026?
- Self-serve up to $200,000. Debts of $200,000 or less can be set up through online services, Online services for business, the self-help phone line or your registered agent. Anything bigger needs a conversation with the ATO about your income, expenses and assets.
- Conditions. You must lodge every obligation on time and keep paying fresh tax liabilities as they fall due (or put them on a plan of their own).
- Interest. GIC keeps compounding daily on the outstanding balance. Shorter plans cost less.
- Default. Break the conditions and the ATO can treat the whole overdue amount as due at once.
- History counts. Defaulting on or cancelling two or more plans in the previous 12 months brings extra scrutiny next time.
- Engagement. Keeping to a plan counts as effectively engaging, which keeps a debt off credit reports.
Loan or plan: how do they compare head to head?
| Factor | ATO payment plan | Business loan to clear the debt |
|---|---|---|
| Cost basis | GIC, compounding daily, rate reset quarterly | Set by the lender on your security, trading and term |
| Tax deductible? | No, for GIC incurred from 1 July 2025 | Interest generally yes, if borrowed for a business purpose (confirm with your accountant) |
| Speed to arrange | Very fast online up to $200,000 | Days to weeks, depending on security |
| Security needed | None | Depends: unsecured for smaller amounts, property for larger |
| Credit reporting risk | Avoided while you keep the plan | Removed once the ATO is paid out |
| If you miss a payment | Full balance may become payable | Default under the loan contract |
| Flexibility | New debts must be paid on time alongside | One repayment schedule; ATO account cleared |
| Effect on future borrowing | Lenders see a managed debt | Lenders see a cleared debt and a new loan |
Our best way to fund hub covers every goal, and our verdict on the best way to fund an ATO debt covers lender appetite for each debt size.
How do you compare the two in dollars?
Use the same period and the same debt for both:
- Ask the ATO for a payout amount that includes GIC up to your intended settlement day.
- Estimate total GIC on the plan. Use the ATO’s current published rate and your planned instalments. A tax agent can model it.
- Get the loan’s total cost: interest plus establishment, valuation, legal and ongoing fees.
- Adjust for tax with your accountant. Plan GIC from 1 July 2025: no deduction. Loan interest: usually deductible.
- Compare after-tax totals and the repayment in your slowest month.
Put the loan options side by side in our total cost comparer. Weighing up a loan against your plan right now? Ask a specialist to price the loan side with no credit check to start.
When does the payment plan win?
- The debt is modest and you can clear it within a few months.
- You don’t have security, and an unsecured loan would cost more than the plan’s GIC.
- Trading is temporarily weak and you can’t yet support a new loan.
- You need time to get lodgements up to date before any lender would look at the file.
Our verdict: a short plan is the cheapest, simplest fix for a small, temporary debt. Keep it short.
When does a business loan win?
- The debt is large or would take a year or more on a plan.
- You own property or have strong trading to borrow against.
- The debt is near or above $100,000 and has been overdue for some time.
- You have other expensive debts that could be consolidated at the same time.
- Your plan history includes defaults that make a new plan harder.
Property-secured options include caveat loans for short, fast clearances and longer facilities when you own property. If several debts are in play, see our verdict on the best loans to consolidate debt.
Does it matter what kind of tax you owe?
Yes, in two ways. First, the ATO treats some debts differently when you set up a plan: its payment plan guidance says super guarantee charge debts can’t be arranged through the online tools and need a direct conversation with the ATO, and income tax and activity statement accounts may need separate plans. Second, lenders read the debt type as a clue to the cause. An income tax bill after a strong year is a timing problem. Unpaid GST, PAYG withholding or super usually means operating cash has been funding the business, which a lender will want to see fixed.
Super deserves a special mention for 2026. Since Payday Super began on 1 July 2026, the ATO expects super to land in each employee’s fund no later than seven business days after payday. A business that relied on the old quarterly lag can fall behind quickly, so if super is part of your debt, fix the payroll process before choosing either option.
What happens if you choose neither?
The costs escalate. GIC compounds daily, and from 1 July 2025 it’s all non-deductible. Once $100,000 has sat unpaid for over 90 days without engagement, the ATO may tell the credit bureaus after giving 28 days’ written warning, closing off cheaper lenders. Directors can receive director penalty notices for some unpaid amounts, and the ATO can issue garnishees. Doing nothing is the most expensive option on the table.
An illustrative example
Illustrative only. Invented round numbers, not ATO rates or lender pricing, and not tax advice.
A building company owes the ATO $140,000. Option one: an 18-month plan, with estimated GIC of around $18,000, none of it deductible. Option two: a two-year property-secured loan with a total cost of about $21,000 including fees, which the accountant expects to be largely deductible.
Before tax the plan looks cheaper. After tax, the gap narrows sharply, and the loan clears the ATO account in full, removing any credit reporting risk on a debt above $100,000 and freeing the company from the plan’s conditions. The directors also roll in a $30,000 equipment debt at the same time. Verdict for this business: the loan, narrowly on cost and clearly on risk. For a $25,000 debt cleared in four months, our verdict would flip to the plan.
Ready to compare a loan with your ATO plan?
The right answer depends on your debt, your security and your timeline, and the only fair test is dollars after tax. Send us the details and a specialist will price the loan side so you can put it next to the plan. Your first enquiry doesn’t trigger a credit check, we don’t push your details out to a stack of lenders, and you’ll be looked after by a real person. Please include the actual ATO balance and any plan you’re on; precise figures are how we get the match right first time.
Questions owners ask
Is it better to get a loan or a payment plan for an ATO debt?
It depends on size and duration. A payment plan suits smaller debts you can clear within a few months. A loan often suits larger or longer debts, because GIC is no longer deductible from 1 July 2025 while business loan interest generally is, and a loan clears the ATO account immediately. Compare the after-tax cost in dollars.
Can I set up an ATO payment plan online?
Yes, for debts of $200,000 or less. The ATO lets individuals and businesses set up a plan through online services, Online services for business, the self-help phone line or a registered agent. Debts above $200,000 require a call, with details of income, expenses and assets.
Is GIC charged while I'm paying off a plan?
It is. The ATO's guidance is that general interest charge keeps building on debts under a plan, compounding every day. Paying the debt off over a shorter period means less GIC in total, and since 1 July 2025 none of that GIC is tax deductible.
Can the ATO report my business tax debt to credit agencies?
It can. Reporting is possible when an ABN holder that isn't in an exempt category owes $100,000 or more that is over 90 days late and has stopped working with the ATO on it. Written notice comes first, with 28 days to respond. Keeping to a payment plan counts as engaging.
What happens if I default on an ATO payment plan?
The ATO says the whole overdue amount can then become payable straight away. Plans require you to lodge on time and pay new debts in full and on time. Defaulting on or cancelling two or more plans in the past 12 months brings closer scrutiny of any new arrangement.
Can I get a business loan if I already owe the ATO?
Often, yes. Many lenders will refinance a tax debt, particularly with property security, provided lodgements are up to date and the cause of the debt has been dealt with. A debt already on a plan that's being kept is usually viewed more favourably than an unmanaged one.
Reviewed by the Best Biz Loan editorial team · updated 5 October 2026
We judge loan structures and lender types against the same five tests, never named lenders' products, and we never publish rates. How we judge
