Paying an ATO debt with property equity

An ATO debt rarely stays the same size. Interest builds every day, the letters get firmer, and a business that was coping with a cash squeeze can find its bank account frozen by a garnishee notice. If you own property with equity in it, you can usually turn that slow-burning problem into one secured loan with a fixed end date.

This page covers how that works in practice: which structure fits, how the money actually reaches the ATO, what to hand over, and how the loan gets repaid.

Can I use equity in my property to pay the ATO?

Yes. Paying a tax debt is a legitimate business purpose and one of the most common reasons owners borrow against real estate. A private lender looks at the property, what is already owed on it and how you will repay, rather than treating the tax debt itself as a reason to decline.

Three things decide whether it works:

• Equity. There needs to be enough room between what the property is worth and the debts already secured on it.
• An exit. The loan is short-term, so you need a realistic way to repay it: a sale, a bank refinance once the tax account is clean, or business income that is on its way.
• A clean break. The loan should clear the ATO balance, or at least the part doing the damage, rather than buy a few weeks.

If your credit file has taken a hit along the way, our page on second mortgages with bad credit or ATO debt explains how that is weighed.

Why pay the ATO out now instead of waiting?

The ATO’s own guidance gives three reasons to move early.

• The interest keeps compounding. Tax debts on an ATO payment plan continue to accrue general interest charge, which compounds daily. General interest charge incurred on or after 1 July 2025 can no longer be claimed as a tax deduction.
• A plan can collapse. If ongoing obligations are not kept up, the ATO says a payment plan may default, making the full overdue balance immediately payable.
• Firmer action is real. The ATO can issue garnishee notices to banks holding your accounts, to customers who owe you money, to merchant card providers that process your takings, and to solicitors, agents or purchasers involved in selling property you own.

That last point matters if your plan was to sell something and pay the ATO from the proceeds. A garnishee notice can reach those proceeds first, on the ATO’s timetable instead of yours.

Which loan structure suits an ATO payout?

It depends mostly on what is already registered on the title.

Your property position	Structure that usually fits	Why
Owned outright, no mortgage	Private first mortgage	No lender to pay out or ask; first-ranking security keeps pricing sharper
Bank loan in good order, well priced	Second mortgage behind the bank	Keeps the cheaper bank debt; new loan covers only the tax
Bank loan in arrears, or no bank consent	Refinance everything into a private first mortgage	Clears the bank and the ATO in one settlement
Very urgent, smaller amount	Caveat loan	Moves quickly; can later convert to a registered second mortgage

A second mortgage or caveat generally costs more than a first mortgage, because the lender ranks behind another lender and carries more risk. Pricing on every deal is set on its security, LVR, term and exit, and we aim for the sharpest price your situation allows. For a fuller side-by-side, see first vs second mortgage vs caveat.

How does the money actually get to the ATO?

Usually it never touches your business account. At settlement the funds are paid out on your written direction, and the ATO can be one of the payees.

The ATO accepts BPAY under biller code 75556, with your payment reference number (PRN) as the reference. Each type of tax has its own PRN, so your accountant should confirm the right one for each account being cleared. Paying direct at settlement means:

• the balance is cleared in one hit, so interest stops building on it;
• nothing sits in an account where a garnishee notice could catch it first;
• you have a clean paper trail for the ATO, the bank and your accountant.

Ask your accountant for a fresh ATO statement of account a day or two before settlement so the payout figure is current to the dollar.

What documents does a lender need for an ATO payout loan?

Less than a bank, but enough to see the whole picture.

• Photo ID for every borrower, director and guarantor
• ABN or ACN details, plus the trust deed if a trust is involved
• The property address and a statement of anything owing on it
• A current ATO statement of account, plus any payment plan or notices received
• Your lodgement position: are BAS and returns up to date, or is a catch-up under way?
• Evidence of the exit, such as a bank’s indicative approval, a listing agreement, a contract or debtor figures

Lodgement status gets attention because a bank refinance, the most common exit, is far easier once lodgements are current and the ATO balance is nil. Our private mortgage documents checklist covers each item in detail.

What does an ATO payout look like in numbers?

Illustrative example: a Newcastle electrical contractor owes the ATO $260k across BAS and income tax. The payment plan has started to slip. The company owns a warehouse unit worth around $1.4m with a $600k bank loan that is in good order, but the bank will not lend more while the tax debt is outstanding. A $280k second mortgage behind the bank clears the ATO by BPAY at settlement and covers the costs. Interest is capitalised, so there are no monthly repayments while the contractor finishes two large jobs. Eleven months later, with lodgements current and a nil ATO balance, the bank refinances the second mortgage into its own facility.

Two things made that work: the debt was paid in full, not in part, and the exit was a step the bank had already said it would take once the tax was clear.

How is the loan repaid?

Every private loan needs a clear exit. For ATO payouts the common ones are:

1. Bank refinance once the tax account is clean and the next financials are lodged.
2. Sale of a property, often a second investment property, with the loan paid out at settlement.
3. Business cash flow from contracted work or a large debtor, with interest capitalised to protect cash in the meantime.

Interest can be prepaid or capitalised, so there may be no monthly repayments during the term, which is the point when the business needs room to breathe. See how that works on prepaid or capitalised interest. If a director penalty notice has arrived, our guide to director penalty notices and property equity explains why timing matters.

When you are ready, tell us about the property and the ATO balance and a specialist will say which structure fits.

Key terms

• General interest charge (GIC): the ATO’s interest on overdue tax. It compounds daily and, from 1 July 2025, is not deductible.
• Garnishee notice: an ATO direction requiring someone who holds or owes you money to pay it to the ATO instead.
• PRN: the payment reference number that directs a BPAY payment to the right ATO account.
• Exit: the event that repays the private loan.

Ready to clear the ATO? See if you qualify

You can find out where you stand without any credit check, because none is run when you first enquire. Your details go to one place: a real specialist who reads your situation and replies personally, not a list of lenders who all start calling. Our lending partner fundU lends directly and assesses the property itself, with no formal valuation required.

The more precise you are about the property, what is owing on it and the ATO balance, the more likely the first answer is the right one. Start your 60-second enquiry.