ATO Payment Plan vs Private Finance: Which May Suit Your Business?

When a tax debt begins to strain a business, the immediate question is often whether to negotiate with the Australian Taxation Office or arrange separate finance. An ATO payment plan may be the most direct option when the business can comfortably meet instalments from cash flow. Property-backed private finance may be relevant when a lump-sum solution, different repayment profile or more time is required.

This is not a recommendation to replace an ATO arrangement with finance. It is a framework for comparing two commercial pathways. The ATO recommends making contact promptly if a taxpayer cannot lodge or pay on time. Finance enquiries should proceed alongside communication with the ATO and advice from an accountant, tax adviser and lawyer where appropriate.

ATO payment plan vs private finance at a glance

How an ATO payment plan works

A payment plan is an arrangement to pay a tax debt by instalments over time. Availability and terms depend on the taxpayer’s circumstances and the ATO’s assessment. The ATO’s published guidance says that general interest charge applies to amounts not paid by the due date and that finalising the debt over the shortest affordable period can reduce the GIC incurred.

A payment plan may preserve property equity and avoid establishing a new loan. It can also be administratively direct because the arrangement is made with the creditor. However, the scheduled instalments must fit the business’s real cash flow after wages, suppliers, rent, tax obligations and seasonal movements.

Read the current ATO guidance about difficulty paying and confirm the terms for the specific account.

Questions to test before accepting a payment plan

• Can the business meet the deposit and every instalment without creating new arrears?
• What general interest charge is expected while the balance remains outstanding?
• Can current and future tax obligations be paid on time as well?
• What happens if revenue falls or a customer payment is delayed?
• Are there existing notices, deadlines or enforcement steps requiring urgent advice?

How private finance may work

Private finance is a commercial loan provided outside a conventional bank process. In an ATO debt scenario, an acceptable Australian property may secure a facility used for an eligible business purpose. The lender will assess the property, current mortgages, borrower and guarantor position, amount required, urgency and proposed exit.

Some private lenders can consider scenarios that do not fit standard bank servicing models, but “low doc” does not mean no assessment. Valuation, identity, company or trust documents, ATO statements, mortgage information and evidence of the exit may still be required.

Possible structures include a new first mortgage, a second mortgage behind an existing lender, or a short-term property-backed bridge. Ranking, consent, combined debt and the property’s marketability can materially affect whether a structure is available.

Questions to test before using private finance

• What is the total cost through the expected repayment date?
• Is the security acceptable and is sufficient equity likely to remain after all debt and costs?
• Is the exit specific, realistic and supported by evidence?
• What happens if the property sale, refinance or business event is delayed?
• Do the loan documents allow the flexibility the business expects?

When an ATO payment plan may be the better fit

A payment plan may deserve priority where the debt can be cleared within a manageable period from reliable operating cash flow. It may also be preferable when the business does not want to encumber property, private finance costs outweigh the commercial benefit, or the available equity is limited.

The important word is “manageable”. A plan that consumes cash needed for current obligations can simply move the pressure elsewhere. Forecasting should include realistic downside assumptions rather than relying only on the best month or an expected contract.

When property-backed private finance may be considered

Private finance may be relevant when a lump-sum payout is required, instalments would place excessive pressure on working capital, or a clear capital event is expected after the immediate deadline. Examples may include a pending property sale, development completion, residual stock sale or planned refinance to longer-term finance.

It may also be considered where several short-term liabilities need a coordinated commercial refinance. Consolidation only helps if the new facility creates a credible path forward; it should not be used to postpone an underlying solvency or cash-flow problem.

Could a combined strategy work?

The choice is not always all-or-nothing. Subject to agreement and assessment, a business might use property-backed finance to reduce a debt to a manageable level, then address the balance through cash flow or a separate arrangement. Another scenario may involve maintaining an ATO plan while preparing a conventional refinance.

A combined strategy requires careful coordination. The business needs to understand which debts are being paid at settlement, what obligations remain afterwards and whether post-settlement cash flow can support the plan.

Compare total commercial cost—not just the rate

For an ATO plan, consider projected GIC, the length of the arrangement and the operational effect of instalments. For private finance, consider interest, establishment costs, legal and valuation expenses, discharge costs, retained interest if applicable and the cost of any delay to the exit.

Tax treatment can also change. The ATO has stated that GIC incurred on or after 1 July 2025 is no longer deductible. Confirm the current tax treatment with a qualified adviser rather than assuming either form of interest or expense is deductible.

There may also be opportunity costs. Using cash for large instalments may restrict stock purchases or project completion, while using property as security limits flexibility and creates enforcement risk if the loan defaults. The better option is the one that produces a sustainable whole-of-business outcome.

A disciplined decision process

Information to prepare for a finance discussion

• Current ATO statement and correspondence.
• Amount required and any deadline.
• Details of an existing or proposed payment plan.
• Property address, ownership and estimated value.
• Mortgage statements and payout information.
• Borrower, company, trust and guarantor details.
• Commercial purpose and proposed repayment exit.

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Frequently asked questions