Self-Employed With ATO Debt? Here's How Refinancing Can Actually Help
If you're self-employed and carrying a tax debt, you're not alone and you're not necessarily stuck. Cash flow gaps, a slow quarter, or a tax bill that landed harder than expected are common realities of running your own business. What's less well understood is that a tax debt doesn't automatically shut the door on refinancing. In many cases, refinancing is exactly how self-employed Australians get on top of it.
This article walks through why ATO debt is becoming more urgent to deal with, how refinancing works as a solution, and what to expect if you go down this path.
Why ATO debt is a bigger problem than it used to be
For years, plenty of self-employed Australians used ATO debt as informal working capital, pay it down when cash flow allows, cop the interest, move on. Two changes have made that approach considerably more expensive.
First, the interest is no longer tax-deductible. From 1 July 2025, the ATO's General Interest Charge (GIC) and Shortfall Interest Charge (SIC) can no longer be claimed as a tax deduction, regardless of which income year the underlying debt relates to. That's a direct result of the Treasury Laws Amendment changes to how these charges are treated. Previously, at least the interest cost offered a small tax offset. That offset is gone.
Second, the rate itself is high and it compounds daily. GIC is reviewed by the ATO every quarter. For the April–June 2026 quarter the annual rate is 10.96%, calculated daily on a compounding basis, and it climbs again to 11.43% for July–September 2026. That's meaningfully above most home loan rates, and unlike a mortgage, the balance grows every single day it's outstanding.
Third, a large unpaid debt can now become visible to lenders and suppliers. The ATO can disclose a business's tax debt to registered credit reporting bureaus once the debt reaches $100,000, is overdue by more than 90 days, and the business isn't "effectively engaging" with the ATO (broadly: no payment plan, no active dispute). Before that happens, the ATO issues a formal notice and gives the business 28 days to act. A disclosed debt shows up on commercial credit checks and can directly affect a business's ability to secure finance.
Put together, these three shifts mean tax debt that used to sit quietly in the background can now cost more, compound faster, and become a visible black mark, all at once.
Why refinancing is often the better option
If you have equity in a property, refinancing lets you consolidate the ATO debt into your home loan and pay it out in full at settlement, replacing a fast-growing, non-deductible 10–11%+ debt with a single mortgage repayment at a considerably lower rate. In practice, this usually means:
A lower interest rate. Even a specialist or non-bank lender's rate is typically well below the current GIC rate.
One repayment instead of several. Your mortgage, your ATO debt, and potentially other business debts can be rolled into a single, structured repayment.
A cleaner credit file. Clearing the debt in full at settlement removes it as a disclosure risk and stops it from affecting future finance applications.
Breathing room for the business. Freeing up the cash that was going toward a high-interest payment plan can ease day-to-day pressure on the business itself.
This isn't the same as walking into your existing bank and asking them to fold in a tax debt. To be honest, most mainstream lenders won't touch that. It generally means working with a broker (me) who knows which lenders are comfortable with ATO debt on file and structuring the application accordingly.
How the process actually works:
Assess your equity. Your new total loan — existing mortgage, plus the ATO debt, plus any other debt being consolidated — needs to fit within the lender's maximum loan-to-value ratio (LVR). Staying at or under 80% LVR is ideal, since it avoids Lenders Mortgage Insurance, though some lenders will go higher.
Get the right lender for your file. Policy on ATO debt varies enormously between lenders. Some won't consider it at all; others are comfortable provided there's a clear explanation and evidence the business is now trading soundly.
Document the story, not just the number. Lenders want to understand why the debt arose — a one-off cash flow gap from a slow quarter reads very differently to an ongoing pattern of missed obligations. Recent BAS, up-to-date lodgements, and a clear explanation all help.
Lodge the application. Once submitted, this kind of refinance typically takes a few weeks to settle, depending on the lender and complexity of your income.
Settlement. At settlement, the ATO debt is paid out directly, and it's replaced by the new, single loan. Before you refinance: talk to the ATO too
Refinancing isn't the only lever available, and it isn't always the first one to pull. If you're not yet in a position to refinance, the ATO offers payment plans that let you break the debt into manageable instalments though GIC continues to accrue and compound on the outstanding balance while the plan runs, so the sooner it's cleared, the less interest you'll pay overall. If your circumstances are genuinely exceptional (for example, serious illness or a natural disaster), the ATO can also consider temporarily pausing credit bureau disclosure while you work through it.
The two approaches aren't mutually exclusive. Many self-employed people move onto an ATO payment plan first to stop the immediate pressure and protect their credit file, then refinance once their finances and lodgements are in better shape to get a stronger rate and lender outcome.
What lenders will want to see
Expect a lender assessing this kind of refinance to look closely at:
Your last one to two years of tax returns and Notices of Assessment, plus recent BAS Confirmation of the exact outstanding ATO balance, ideally direct from your ATO portal or accountant Whether the debt is a genuine one-off or part of a recurring pattern Your current trading position and cash flow, not just historical tax returns Sufficient equity in the security property to cover the new, consolidated loan
The stronger and more current your documentation, the more lender options you'll have and the better the rate you're likely to secure.
The bottom line
ATO debt doesn't have to be a dead end. With the interest no longer deductible and disclosure risk now built into the system, sitting on tax debt has become a more expensive and riskier long-term strategy than it used to be. For self-employed borrowers with equity in a property, refinancing is often a genuinely better way to deal with it — swapping a fast-compounding, non-deductible debt for a single, lower-rate repayment.
Every situation is different, and lender appetite for ATO debt varies more than almost any other part of a home loan application. If you're carrying tax debt and want to understand what's realistically available to you, I'm happy to talk through your numbers and what a lender is likely to want to see.
**Sources:
** General interest charge —(https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/interest-we-charge/general-interest-charge)
General interest charge (GIC) rates — (https://www.ato.gov.au/tax-rates-and-codes/general-interest-charge-rates)
Calculate and report ATO interest — (https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/interest-we-charge/calculate-and-report-ato-interest)
Payment plans — (https://www.ato.gov.au/individuals-and-families/paying-the-ato/help-with-paying/payment-plans Disclosure of business tax debts)
Credit scores and credit reports (Moneysmart, ASIC) — (https://moneysmart.gov.au/managing-debt/credit-scores-and-credit-reports)
*Any information or advice contained in sidering your individual personal objectives, financial situation or requirements. Before acting or relying on this information, you must consider the appropriateness of this information with regard to your individual circumstances and objectives.
April Six Pty Ltd is a Credit Representative of Astute Financial Management Pty Ltd | Australian Credit Licence 364253 | Credit Representative Number 554762.*
Eshanee Collins is the founder of April Six, a Sydney-based mortgage broker for first home buyers and first-time property investors across Australia.
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