How to Refinance ATO Tax Debt in Australia: Private Lending Options for Business Owners

Unpaid GST, PAYG and income tax debts are one of the fastest ways a healthy business ends up in serious trouble. The ATO now reports tax debts above $100,000 to credit bureaus, charges general interest at rates that compound daily, and issues Director Penalty Notices that can turn a company debt into a personal debt in 21 days. For many business owners, refinancing ATO debt with private lending is the fastest way to stop the compounding, protect the company, and buy time to trade back into strength.

Can you refinance ATO tax debt in Australia?

Yes. You can refinance ATO tax debt in Australia using a secured business loan, a private first or second mortgage against real property, or a short-term caveat loan against equity. Banks rarely refinance ATO arrears directly. Private lenders will consider it when the loan is business-purpose, the property security supports the LVR, and there is a clear exit strategy. Approval depends on the security, the LVR, and the borrower's exit plan.

• ATO tax debt can be refinanced using private lending secured against real property when banks decline.

• Private lenders typically fund at 65 to 75 per cent LVR for a first mortgage and up to 75 to 80 per cent combined LVR behind a bank for a second mortgage.

• Indicative rates on private business-purpose lending range from around 9 to 14 per cent per annum for first mortgages and 12 to 18 per cent per annum for second mortgages and caveats.

• Approval is based on the property, loan purpose, LVR and exit strategy, not solely on the borrower's tax status.

• All refinancing is subject to valuation, credit assessment, legal advice and NCCP considerations where relevant.

Why the ATO is now a major credit event

The ATO holds more small business debt than the big four banks combined. Since the 2023 disclosure changes, tax debts above $100,000 that are more than 90 days overdue and not on a compliant payment plan are reported to credit bureaus. That single event can freeze a business out of bank finance, trade credit and equipment funding.

Two other pressures make refinancing urgent. First, general interest charge on unpaid tax is no longer tax deductible from 1 July 2025, so every day the debt sits with the ATO gets more expensive after tax. Second, the ATO has restarted garnishee notices, Director Penalty Notices and firmer collection action after several years of pandemic-era leniency.

Who this may suit

Refinancing ATO debt through private lending may suit business owners who:

• Own real property with usable equity, either residential or commercial.

• Need to clear a lump sum tax debt quickly, often to remove a garnishee, satisfy a DPN, or reset a bank facility.

• Have a clear 6 to 24 month exit strategy, such as bank refinance, property sale, contract settlement, or ATO payment plan reinstatement.

• Have been declined by the bank because of the ATO reporting itself, not because of underlying insolvency.

It may not suit owners with negative equity, no realistic exit strategy, or a business that is structurally unprofitable. In those cases, private lending buys time but does not fix the underlying problem, and a restructuring or insolvency conversation with a registered advisor is usually a better first step.

The main private lending options for ATO debt

Not every loan structure fits every borrower. The right option depends on how much you need, what security you can offer, and how quickly you plan to exit.

First mortgage refinance

If your bank facility can be paid out entirely, a private first mortgage rolls the existing loan and the ATO debt into a single private facility. Loan sizes typically start from $250,000 and run past $10 million. Indicative pricing sits around 9 to 12 per cent per annum for residential security in metro locations, and 11 to 14 per cent per annum for commercial or regional security. LVRs are usually capped at 65 to 70 per cent depending on the asset.

Second mortgage behind the existing bank

If the bank facility is competitive and you only need to raise the ATO amount, a second mortgage sits behind the existing first mortgage. The first mortgagee is paid out before the second in a sale, which is why second mortgages are priced higher. Indicative pricing is 12 to 24 per cent per annum. Combined LVR is typically capped at 70 to 75 per cent depending on the lender, property type and location. Second mortgages usually need the first mortgagee's consent, which adds time and cost.

Business loan secured by property equity

A secured business loan against property equity can be structured either as a first or second mortgage, but pitched and priced as a working capital or debt consolidation facility. This is often the cleanest structure when the ATO debt is one of several liabilities being tidied up in a single settlement.

A realistic scenario

A Sydney-based building company owes the ATO $420,000 in GST and PAYG, spread across three quarters. The company has a $1.8 million commercial workshop in Western Sydney with a $700,000 bank loan against it. The bank has declined further funding because of the ATO tax debt disclosure.

An indicative private second mortgage may be structured as follows:

• Security: Commercial workshop, Western Sydney.

• Property value (indicative): $1,800,000.

• Existing first mortgage: $700,000.

• New second mortgage: $450,000 (ATO payout $420,000 plus costs).

• Combined LVR: 63.9 per cent.

• Indicative rate: 13.95 per cent per annum, interest capitalised.

• Term: 12 months.

• Exit strategy: Bank refinance once ATO is cleared and 6 months clean lodgements are shown.

The borrower clears the ATO debt at settlement, resumes deductible interest treatment on the new loan, protects the directors from further DPN escalation, and gives the business six to twelve months to demonstrate clean lodgements before returning to a mainstream bank. Rates, LVRs and terms are indicative only and subject to valuation, lender assessment and credit approval.

How lenders assess an ATO debt refinance

Private lenders focus on the deal, not the drama. Their assessment typically covers:

• The security. Recent valuation, location, condition, marketability and any tenancy or planning issues.

• The LVR. Combined loan to value including any existing first mortgage.

• The loan purpose. ATO payout, working capital, consolidation, or a mix, structured as business-purpose.

• The exit strategy. How and when the loan will be repaid. Bank refinance, property sale, contract settlement and ATO payment plan reinstatement are all acceptable if the timing and evidence stack up.

• The borrower's conduct. Not perfect credit, but no recent insolvency, no undisclosed defaults, and a plausible story about how the ATO position developed.

• Compliance. Business-purpose declaration, independent legal advice, and, where relevant, first mortgagee consent for a second mortgage.

Lenders will usually want to see the ATO Integrated Client Account, recent BAS lodgements, a short cashflow forecast, and any correspondence with the ATO about garnishees, DPNs or payment plans.

Timeframes

A well-prepared caveat loan can settle in 3 to 7 business days. A private second mortgage typically settles in 2 to 3 weeks once valuation and first mortgagee consent are in hand. A private first mortgage refinance usually settles in 3 to 4 weeks. Speed depends on the valuation turnaround, the co-operation of the existing bank, and how quickly borrower documents are provided.

Risks and what to weigh up

Private lending is a tool, not a rescue. The main risks to weigh up are:

• Higher rates. Private lending costs more than bank finance and is not a permanent solution.

• Short terms. Most facilities run 6 to 24 months and rely on a real exit strategy.

• Capitalised interest. Many private loans capitalise interest into the loan, which reduces cashflow pressure but increases the payout figure at exit.

• Costs. Establishment fees, legal fees, valuation fees and, for second mortgages, first mortgagee consent fees can add 2 to 4 per cent of the loan amount.

• Personal exposure. Directors will usually be asked to provide personal guarantees, and second mortgages often require the property owner's spouse to obtain independent legal advice.

Every borrower should obtain independent legal, financial and tax advice before signing. This is general information, not financial advice.

How Innovate Funding helps

Innovate Funding works with a panel of private and non-bank lenders across Australia who consider business-purpose refinances against real property, including where ATO tax debt is part of the picture. As specialists in private lending in Australia, the team helps borrowers structure the request, prepare the file, negotiate LVR and pricing, and manage settlement so the ATO is paid at the same time the new facility funds.

Ready to talk it through? Speak with the team at Innovate Funding about your ATO position and property security.

Frequently asked questions

Will a private lender refinance ATO debt if I already have a Director Penalty Notice?

Possibly, depending on the type of DPN, days remaining in the notice period, and property security available. Lockdown DPNs are harder because personal liability is already crystallised. Non-lockdown DPNs may be resolved by paying the debt within 21 days. See our Director Penalty Notice guide.

Can I use my home as security for a business ATO debt?

Yes, where the loan is business-purpose and appropriate legal advice is obtained. Because a family home is involved, NCCP considerations and independent legal advice for any non-borrowing spouse are strictly enforced by reputable private lenders.

How much does it cost to refinance ATO debt with private lending?

Indicative rates run 9 to 14 per cent per annum for first mortgages and 12 to 18 per cent per annum for second mortgages, plus establishment, legal and valuation fees of around 2 to 4 per cent of the loan. Actual pricing depends on the security, LVR and term.

Does the ATO have to agree to the refinance?

No. You do not need ATO consent to refinance the debt. You do need to clear the ATO balance at or shortly after settlement, which is usually handled through the settlement agent. If a garnishee is in place, lender and legal advisors will coordinate the payout so the garnishee is released.

Can I still get a bank loan after clearing my ATO debt?

Often yes, but not immediately. Most banks want to see 6 to 12 months of clean BAS lodgements and no further ATO disclosure before approving a refinance. The private facility is usually structured with this timeline in mind.

Is interest on a loan used to pay ATO debt tax deductible?

Interest on a business-purpose loan used to pay business tax debts is generally deductible, subject to the facts and your accountant's advice. This is a common reason owners refinance ATO debt into a private facility after the 1 July 2025 change to deductibility of the general interest charge.

Key takeaways

• ATO tax debt over $100,000 that is not on a compliant payment plan can be reported to credit bureaus and will usually block bank finance.

• Private lending can refinance ATO debt using first mortgages, second mortgages, caveat loans or property-backed business loans, subject to valuation, LVR and exit strategy.

• Indicative pricing is 9 to 14 per cent per annum for first mortgages and 12 to 18 per cent per annum for second mortgages and caveats, with LVRs commonly capped at 65 to 80 per cent depending on structure.

• The right structure depends on the debt size, existing bank position, security available and time to exit.

• Independent legal, financial and tax advice is essential. This article is general information, not financial advice.

• Innovate Funding helps borrowers structure and negotiate business-purpose refinances that clear ATO debt at settlement.