ATO payment plan or a property-secured loan: how to choose

When a business falls behind with the ATO, the first instinct is usually to ask for time. A payment plan feels like the safe, official route. Sometimes it is. But a payment plan is still a debt to the ATO, it still grows, and it comes with rules that can turn a manageable problem into a pressing one if a single month goes wrong.

The alternative many property-owning business owners weigh up is a short-term loan secured on real estate: pay the ATO in full now, then repay the private lender from a sale, a bank refinance or a known business payment. This guide puts the two side by side so you can see which one actually leaves your business in a stronger position.

What does an ATO payment plan actually involve?

A payment plan lets you pay an overdue tax debt by weekly, fortnightly or monthly instalments over a fixed period. According to the ATO’s current guidance:

• Self-service up to $200,000. Balances at or below that level can often be put on a plan without speaking to anyone, using the ATO’s online services or its automated self-help phone line.
• Phone negotiation above that. A phone call is generally required for debts of $200,000 or more, for plans that need to run past two years, and for businesses with two or more defaulted or cancelled plans within the last year.
• Financial questions. On the phone, the ATO asks why you can’t pay by the due date, about bank balances and lines of credit, income, expenses and assets.
• Separate plans. Income tax owed and BAS (activity statement) debts each need a plan of their own.
• Ongoing obligations. You must keep lodging on time and pay new debts as they fall due. If you don’t, the plan may default and the full overdue balance can become payable immediately.

Most importantly, debts on a standard plan continue to accrue the general interest charge (GIC), which compounds daily. The plan buys time; it does not stop the meter.

Are there cheaper ATO options than a standard plan?

Two alternatives are worth knowing about before you decide anything.

Interest-free plans. The ATO offers small businesses an interest-free arrangement for overdue activity statement amounts, paid by direct debit within 12 months. GIC still accrues but is automatically remitted while the plan is kept up to date. You may be eligible if the business:

• has annual turnover under $2 million;
• owes no more than $50,000 in activity statement amounts that have been overdue for 12 months or less;
• has no outstanding activity statement lodgments and no more than one plan default in the last 12 months;
• can’t get finance, such as a loan, through normal business channels; and
• can show it’s still viable.

If you qualify, it’s hard to beat on cost. Note the finance test, though: the ATO expects you to have tried to borrow first.

Secured payment plans. Where the ATO can’t reach agreement with you, it may consider an offer of security to support a deferral or instalments. It prefers either an unconditional guarantee from a bank or a registered mortgage over freehold property. In other words, the ATO may end up on your title anyway, while the debt stays with the ATO and keeps accruing interest charges.

How does a property-secured loan compare, side by side?

Feature	Standard ATO payment plan	Property-secured private loan
What happens to the ATO debt	Stays in place, reduced by instalments	Paid in full at settlement
Ongoing interest charge	GIC accrues, compounding daily	Loan interest, priced per deal on security, LVR, term and exit
Tax deductibility of the interest	GIC incurred from 1 July 2025 is not deductible	Some business loan interest may be deductible — confirm with your accountant
Cash flow during the term	Regular instalments plus all new tax on time	Interest can be prepaid or capitalised, so there may be no monthly repayments
What a missed month means	Plan may default; full balance can become payable	Loan is repaid from the agreed exit at the end of the term
Effect on a future bank application	An open ATO debt stays on the file	ATO account shown as clear
Who decides	The ATO, on its criteria	A private lender, on equity and exit
Amounts	Debt-specific	$20k to $5m

The biggest practical difference is the shape of the risk. On a payment plan, the risk returns with every instalment until the plan is finished. With a secured loan, the risk is concentrated in one place: the exit. If the exit is solid, that’s often the easier risk to manage.

When is a payment plan the better choice?

Be honest with yourself here. A plan is usually the smarter move when:

• The debt is small relative to monthly cash flow and can be cleared quickly.
• You qualify for the interest-free plan — few loans compete with no net interest.
• There’s no property equity or no realistic exit for a short-term loan.
• The business is still losing money. Borrowing to pay the ATO only helps if the cause of the debt has been fixed.

When does a secured loan come out ahead?

A loan secured on property tends to make more sense when one or more of these apply:

• The debt is large, so GIC compounding daily adds up quickly and the instalments would strain wages and suppliers.
• A director penalty notice has arrived or is likely. A plan doesn’t appear among the ATO’s listed ways to remit a director penalty; paying in full does. The 21-day window is explained in our director penalty notices and property equity guide.
• You need a bank refinance soon. Banks are wary of open tax debts. Clearing the ATO first can be what makes the refinance possible.
• You have a plan default history. Two or more defaults or cancellations in 12 months makes the next plan harder to get.
• You want to avoid credit reporting. The ATO can report a business with at least $100,000 overdue for more than 90 days that isn’t effectively engaging. A plan you’re complying with counts as engaging — but only while you keep complying.

If that sounds like your situation, ask a specialist whether your property can clear the ATO before the next instalment falls due.

What does the comparison look like in dollars?

Illustrative example: A Newcastle electrical contractor owes the ATO $300,000 across activity statements and income tax, and owns an investment unit with no debt on it. The numbers below are round illustrative figures, not a quote and not the ATO’s actual charge.

Option	Cash out each month	Interest-type cost over 12 months (illustrative)	Deductible?
Standard payment plan over 12 months	About $27,000 a month, plus all current BAS and tax	GIC of around $20,000	No, for GIC incurred from 1 July 2025
Private first mortgage over the unit, interest capitalised	Nil	Assessment fee of $6,000 and interest of $30,000 over the term, plus legal and registry costs	Business loan interest may be — accountant to confirm

On raw dollars, the payment plan can look cheaper. But the contractor’s real question is different: can the business find $27,000 a month on top of current tax for a full year without starving its jobs? If the answer is no, the plan is likely to default, and a default can make the whole balance payable at once. The loan costs more on paper but removes the monthly pressure, clears the ATO immediately and is repaid when the contractor refinances the unit with a bank in month ten. The right answer is the one that survives a bad month.

How do you work out which is cheaper for your business?

Run both options through the same four questions:

1. Total cost to exit. For the plan, estimate GIC over the realistic period, remembering it compounds daily and isn’t deductible. For the loan, add interest, the assessment fee, legal and registry costs. Our guide to the total cost of a short-term loan walks through the arithmetic.
2. After-tax cost. Ask your accountant how each is treated. The deductibility gap is now real — see ATO interest no longer deductible.
3. Cash flow survival. Can the business meet instalments plus current tax every month, including in your slowest quarter?
4. Exit certainty. For the loan, what event repays it, and when? A short-term loan without a clear exit just swaps one problem for another.

Which loan structure usually fits an ATO debt?

• Private first mortgage if the property is debt-free or you’re refinancing the existing loan anyway. Terms run from 1 to 24 months.
• Second mortgage if you want to keep your bank loan in place. See second mortgages with bad credit or ATO debt.
• Caveat loan for smaller, fast amounts where speed matters most, with the option to convert to a registered second mortgage later.

Interest can be prepaid or capitalised, so the business keeps its cash for wages and current tax. Our page on how to pay an ATO debt with property equity covers that situation from start to finish.

Key terms at a glance

• GIC (general interest charge): the ATO’s interest on overdue tax, compounding daily.
• Payment plan: an ATO arrangement to pay a debt by instalments over a fixed period.
• Interest-free plan: a 12-month ATO arrangement for eligible small business activity statement debts.
• Secured payment plan: an ATO arrangement backed by a mortgage over freehold property or a bank guarantee.
• Exit: the event that repays a short-term loan, such as a sale or bank refinance.

Weighing your options? See if you qualify

If you own property with equity and can name how a loan would be repaid, it’s worth getting a firm answer before committing to another year of instalments. Tell us the property, every debt registered against it, how much the ATO is owed and the exit you have in mind.

There’s no credit check to enquire, your details go to one specialist rather than a list of funders, and our lending partner fundU assesses the property directly — no formal valuation required. Funding is possible within 24–48 hours once documents are in. Start a 60-second enquiry about clearing your ATO debt.