Since the general interest charge lost its tax deduction, the case for refinancing ATO debt has stopped being marginal. Non-deductible GIC near 11 per cent costs a base rate company the equivalent of 15.4 per cent before tax. Worked figures use the June 2026 quarter effective rate of about 11.6 per cent; at the July to September 2026 rate of 11.43 per cent the effective rate is about 12.1 per cent, which lifts each figure by roughly 4.5 per cent. Interest on a deductible business facility at the same headline rate costs the equivalent of 8.25 per cent after tax, close to half. But the whole arbitrage rests on one word, deductible, and deductibility depends entirely on who borrows and what the debt is. Get the structure right and the refinance pays for itself. Get it wrong, most commonly by a director borrowing personally to bail out the company, and you swap non-deductible interest for different non-deductible interest plus a security over the family home. This guide maps the decision tree.
Published: July 2026
Start with why this is worth structuring carefully. Take $200,000 of tax debt. Check the current GIC rate before you model a live refinance.
Left with the ATO at an effective 11.6 per cent (June 2026 quarter basis; see rate note above), the annual interest is about $23,200, none of it deductible, requiring roughly $30,900 of pre-tax profit for a 25 per cent company to fund.
Refinanced into a deductible business facility at, say, 11.5 per cent, the annual interest is $23,000, but the deduction returns $5,750 at the company rate, for a true after-tax cost of $17,250, funded by $23,000 of pre-tax profit. Same headline rate, roughly $7,900 a year cheaper in pre-tax terms, before counting the second benefit: the ATO stops being your lender, which removes the enforcement risk, the credit-reporting exposure and the refund-offsetting that come bundled with tax debt.
Even a facility priced meaningfully above GIC can win. For a base rate company, the break-even is a deductible rate around 15.4 per cent; below that, borrowing beats owing the ATO. At the 30 per cent company rate the break-even sits near 16.5 per cent. At the top personal marginal rate including Medicare, the break-even approaches 22 per cent. The arithmetic is rarely the hard part. The deductibility is.
A hypothetical $3 million revenue trade company with 16 staff carries $185,000 of activity statement and income tax debt. Three options:
For many viable businesses, option two is the practical win. Option one is right when borrowing is unavailable. Option three is the trap path when taken unstructured.
Interest is deductible where the borrowing has the required connection to producing assessable income or carrying on a business for that purpose. Applied to tax debts, the case law and ATO position resolve into a pattern that sounds like a technicality and behaves like a wall:
The pattern to internalise: follow the liability, not the money. Whose debt is it, and did it arise from carrying on a business? Those two questions do nearly all the work, and they are also why the same refinance can be efficient in one structure and worthless in another. This is general information only; confirm your arrangement with a registered tax agent before you commit.
Here is the structure that fails, and it fails constantly because it is the path of least resistance when a bank says no to the company.
The company owes the ATO $180,000. The company’s borrowing capacity is exhausted, so the director borrows personally, often against the home, and pays the company’s debt directly. The outcome is the worst available combination: the director’s interest is generally not deductible, because the director has no relevant income-producing connection to paying someone else’s tax bill, and the family home now secures a struggling company’s historical liabilities. The company’s debt is gone; the household’s has just begun, at full after-tax cost.
If personal capacity is truly the only capacity available, structure matters enormously and the details belong with a tax adviser before a dollar moves: whether funds are advanced to the company as a documented loan on commercial terms, what the company then does, how repayments and any interest flow back, and what Division 7A and security implications follow. The unstructured version, director pays ATO from a personal redraw, is the one that delivers no deduction and maximum personal exposure, and it is the version people execute in a stressful week without advice. The two hours of advice cost less than one month of the interest difference.
Directors should also weigh director penalty exposure on any unpaid PAYG withholding or super guarantee inside the balance. Refinancing the company debt can remove the company interest meter, but personal director penalty rules run on their own statutory conditions.
One honesty check belongs above all the structures: refinancing converts a tax debt into a commercial debt, it does not repair the operating problem that created it. A business that accumulated $200,000 of ATO arrears has been under-provisioning for a long time, and a refinance without a provisioning fix, obligations transferred weekly to a tax reserve as revenue and payroll occur, is a two-year loop back to the same place, this time with the assets already pledged. Fixing that rhythm is standing work for an embedded finance team, and it is the difference between refinancing once and refinancing as a lifestyle.
Expect a clean, current set of numbers. At minimum: last six months of bank statements, aged receivables and payables, a recent BAS history, a simple cashflow forecast for the next 13 weeks, and a one-page explanation of how the debt arose and what changed. Businesses whose books are months behind pay more for money or get declined. The cash flow forecast calculator and when will I run out of money tools are useful pre-work; so is bringing bookkeeping current before the credit application, not during it.
If the ATO has already issued an intent letter or recovery correspondence, disclose it early. Surprises on credit files kill more tax-debt refinances than interest rates do.
Whose debt is it? If the company’s: can the company borrow on any sensible terms? If yes, refinance in the company, deduct the interest, and fix the provisioning rhythm. If no, run the payment plan properly and ask why the company is unbankable, because that answer matters more than the debt. If the debt is a sole trader’s or partner’s: split it. The business obligations, GST, withholding, super, sit on the deductible side of a refinance; the personal income tax component does not, and no restructuring enthusiasm changes that. And if the plan involves a director’s personal borrowing for a company’s debt: stop, get specific advice on structure first, and treat the family home as the last asset committed, not the first.
Expensive option: leave $200,000 with the ATO for two years on a flat plan, pay roughly $20,000-plus of non-deductible GIC, absorb refund offsets, and carry credit-reporting risk if the balance stays above the disclosure thresholds without engagement.
Practical option: clear the balance with a company facility under 15 per cent deductible, pay $12,000 to $18,000 after-tax interest in year one on a reducing balance, and redirect the old GIC cash into a tax reserve so the debt cannot reform. Pair the refinance with weekly bookkeeping and BAS provisioning; the finance cost of doing that properly is usually a fraction of the interest saved. For broader cash discipline, see the 90-day cash survival plan and working capital for SMEs.
Is interest on a loan to pay off ATO debt tax deductible?
It depends on who borrows and whose debt it is. A company borrowing to pay its own tax debts can generally deduct the interest because the liabilities arise from its business. An individual borrowing to pay personal income tax cannot, and a director borrowing personally to pay the company’s tax generally gets no deduction either.
Why refinance at all instead of keeping an ATO payment plan?
Because GIC is no longer deductible while genuine business borrowing usually is, so even a similar headline rate is far cheaper after tax, and refinancing removes the enforcement, credit-reporting and refund-offset consequences that travel with tax debt. Plans remain right for viable businesses without borrowing capacity.
What rate makes refinancing worthwhile?
For a base rate company, any deductible facility below roughly 15.4 per cent beats GIC near 11 per cent effective, because the grossed-up cost of non-deductible interest is the effective rate divided by one minus your tax rate. Run the comparison per quote; the break-even moves with your tax rate and the current GIC rate.
Can a sole trader deduct interest on a loan to pay their tax bill?
Not for their income tax, which is a private liability even when the income came from the business. Borrowing to fund the business’s own obligations such as GST and PAYG withholding sits differently. Mixed debts should be split and structured with advice.
Is it a good idea for a director to borrow against the house to pay company tax?
Unstructured, it is usually the worst available option: no deduction for the director and the family home securing a company’s historical debt. If personal capacity is truly the only capacity, the structure of how funds enter the company determines everything, and that is a specific-advice question before any money moves.
Will the ATO accept a partial refinance plus a payment plan for the rest?
The ATO assesses engagement and capacity, and a substantial upfront reduction funded by a facility typically strengthens a plan proposal for the remainder considerably. Pair it with a remission request where grounds exist.
Does refinancing the debt fix the problem?
It fixes the price of the debt. The debt existed because obligations were not provisioned as they accrued, and unless that rhythm changes, weekly transfers of GST, withholding and super to a reserve as they arise, the balance rebuilds. Refinance once, and fix the machine in the same month.
What documents do lenders want for a tax-debt refinance?
Usually bank statements, aged debtors and creditors, recent BAS history, a short cashflow forecast, and a clear explanation of cause and cure. Current books improve both approval odds and pricing.
Is this advice on what my business should do?
No. Deductibility outcomes turn on your entity type, the nature of each debt and how any refinance is structured, and this guide is general information only. Confirm your specific arrangement with a registered tax agent or adviser before committing.
Scale Suite is a Sydney-based provider of outsourced finance teams and fractional CFO services for Australian SMEs. We deliver weekly bookkeeping, payroll, BAS/IAS lodgement, cashflow reporting, management accounts, and strategic fractional CFO oversight, all as a fully embedded team that works inside your business.
CA-qualified, Xero Certified, and registered BAS Agents, we replace fragmented bookkeepers and once-a-year accountants with one responsive finance function at a fraction of the cost of full-time hires. We serve growing businesses across Sydney, Melbourne, Brisbane, and Perth, with packages starting from $1,500 per month and no lock-in contracts.
Visit Scale Suite | Browse our finance services | Pricing for finance packages | Explore finance tasks
We review and check this guide periodically. At the time of writing (July 2026), all information was current. Scale Suite is a registered BAS Agent, not a licensed tax advisor or financial advisor. This content is general information only and does not constitute professional tax, financial, or legal advice. Some details may change over time.
Scale Suite is a Sydney-based provider of outsourced finance and HR services for Australian SMEs. We deliver bookkeeping, financial reporting, payroll processing, fractional CFO support, recruitment, employee onboarding, people and culture support, and fractional HR oversight, all as a fully embedded team that works inside your business.
Employment Hero Gold Partner, CA-qualified, and Xero Certified, we replace fragmented finance and HR processes with one responsive, senior-level function at a fraction of the cost of full-time hires. We serve growing businesses across Sydney, Melbourne, Brisbane, and Perth, with packages starting from $1,500 per month and no lock-in contracts.
30 minutes with our team.
We'll review your current finance setup, compare the full cost of an internal hire against our embedded team, and show you exactly what your finance function should cost at your stage of growth.
You'll leave with a clear view of what's working, what's missing, and where you'd save.
No lock-in contracts. 30-day money-back guarantee.
Prefer to book directly? Grab a time here.
