The ATO issued 84,529 Director Penalty Notices in 2024-25, up 136% year on year. But 60% of business overdrafts we settle involve some ATO exposure. Here is exactly how it works, what lenders actually care about, and the playbook for turning a tax debt into a solved problem.
Check my eligibility → Call 02 8046 3933Written and reviewed by John Pierre Saliba, Director and Senior Finance Broker, MFAA Accredited. Last reviewed 18 September 2026.
Yes - you can get a business overdraft or business loan with ATO tax debt. The key is a formal ATO payment plan that you are servicing: lenders treat managed debt very differently to unmanaged debt, and every application is assessed case by case. Around 60% of overdrafts we settle involve some ATO exposure, with decisions from 1 hour.
Between 2022-23 and 2024-25 the rate of DPN issuance increased roughly 18-fold. The ATO itself describes this as firmer recovery strategies and has stated it will continue escalating action against directors who do not actively engage.
Insolvency statistics are at historic highs. The number of Small Business Restructuring appointments grew from 448 in 2022-23 to an estimated 3,000 in 2024-25, most of them driven directly by ATO debts and subsequent DPNs.
If you have company tax debt and you have ignored or avoided engagement with the ATO, the probability of a DPN landing in your mailbox is materially higher today than it was 18 months ago. And a DPN is not like a normal debt collection notice. It pierces the corporate veil and makes the director personally liable.
Issued when a company has lodged its BAS, IAS, or SGC statements on time but has not paid the amount owed. The director has 21 days from the date the notice is issued to take one of these four actions:
Note what is NOT on this list: entering into a new payment plan with the ATO after the DPN is issued. Payment plans do not pause the 21-day clock.
Issued when the company has failed to lodge BAS, IAS, or SGC statements within 3 months of their due date. A lockdown DPN effectively bypasses the 21-day grace period. The director is already personally liable when the notice is received.
Since 1 July 2026, the Payday Super rules interact with the DPN regime. If a company fails to pay super on time AND fails to report the unpaid super to the ATO within 60 days, the ATO can estimate the SGC and issue a Lockdown DPN. There is no 21-day window.
Payday Super is now live - which is why having a working capital facility in place before a pay run falls short matters. It gives you the ability to pay super on time, every cycle, and avoid the liability cascade entirely. Read the Payday Super playbook.
Non-bank lenders on our panel assess business overdraft applications on cash flow, not historical tax position. The core question they ask is: can this business service the overdraft from its current operations?
The single variable that moves the decision is the state of the debt, not its existence:
| ATO debt state | What it means to a lender | Impact on approval |
|---|---|---|
| Formal payment plan, serviced on time | Managed obligation with demonstrated payment history | Generally acceptable - a straightforward approval for most non-bank lenders where the plan fits your revenue |
| No arrangement, debt accumulating | Unmanaged liability that competes with loan repayments | Most lenders decline or require the plan to be in place first |
| Default, DPN issued or garnishee action | Active ATO enforcement | Overdraft lending is generally unavailable - specialist insolvency or legal advice comes first |
When you disclose ATO debt, lenders look at: the total amount outstanding, the agreed instalment amount and frequency, whether you are up to date on the plan, the type of debt (GST, PAYG, income tax or super guarantee), and the ratio of debt to revenue. A business turning over $40,000 a month with a $25,000 ATO debt on a $2,000 a month plan is a straightforward approval for most non-bank lenders; the same business with $120,000 of ATO debt needs specialist consideration.
| Green light | Red flag |
|---|---|
| Formal ATO payment plan, being serviced | No plan, debt accumulating |
| ATO debt stable or declining | ATO debt growing faster than revenue |
| BAS lodged on time (even if unpaid) | Multiple BAS periods unlodged beyond 3 months |
| Recent engagement with the ATO | Non-lodged SGC (triggers Lockdown DPN) |
| No existing DPN exposure | Active DPN, deadlines missed |
If you are in the red flag column, do not apply for an overdraft first. Speak to an insolvency specialist or your accountant immediately. An overdraft does not solve a DPN deadline; it solves the cash flow gap before the debt gets to that stage.
This change rewrites the maths of carrying tax debt. Before 1 July 2025, GIC was deductible, so the ATO's rate and a lender's rate could be compared almost directly. Now the GIC is a fully after-tax cost, while overdraft interest still reduces your taxable income - so a higher headline overdraft rate can produce a similar or lower after-tax cost than a lower GIC rate. Sources: ATO - interest and penalties and ATO - GIC rates. Deductibility depends on your circumstances - speak with your accountant. See also our business overdraft tax deductions guide.
| ATO payment plan | Business overdraft | |
|---|---|---|
| Interest rate | GIC 11.43% p.a. (July to September 2026 quarter) | 14.55% to 25% p.a. on the drawn balance (example below at 18%) |
| Tax deductible | No - GIC not deductible from 1 July 2025 | Generally yes, for business purposes |
| Indicative annual interest on $50,000 | About $5,715, not deductible | About $9,000 if fully drawn at 18%, deductible; after-tax cost at the 25% company rate about $6,750 |
| Realistic cost in practice | Full balance accrues GIC until cleared | Rarely fully drawn - typical effective interest on a working capital overdraft is closer to $3,000 to $4,000 a year, deductible |
| Enforcement risk while it runs | DPN and garnishee exposure remains until the debt clears | ATO debt cleared - enforcement risk removed |
| Flexibility | Fixed instalments, renegotiation required if cash tightens | Revolving - draw, repay and redraw as cash flow allows |
Indicative comparison only, not tax or financial advice. GIC rate per the ATO GIC rates page; the GIC compounds daily, figures shown are simple annualised approximations. Model overdraft costs in the business overdraft calculator.
When it makes sense. Clearing the debt stops the GIC immediately - and since GIC is no longer deductible, every dollar of it is an after-tax cost. It removes DPN risk entirely, simplifies cash flow to one facility with one payment, resets your relationship with the ATO, and unlike a term loan the facility revolves: as you pay it down, the funds become available again for working capital.
When it doesn't. If the overdraft would sit fully drawn for years, you are paying revolving-credit rates of 14.55% to 25% p.a. for what should be structured debt - compare a debt consolidation loan first. If the ATO debt is large relative to revenue, or a DPN deadline is already running, an overdraft is not the answer - get insolvency or legal advice inside the window. And not all lenders allow facility funds to clear ATO debt: disclose the purpose upfront so your broker matches you with a lender whose policy allows it.
Through the OverdraftMe lender panel, the standard requirements apply even when ATO debt is present:
If you have already received a DPN or a statutory demand from the ATO, a business overdraft is only part of the picture. You need specialist insolvency or legal advice within the 21-day window. This page explains how to avoid that situation by funding your way through ATO debt before it escalates.
Yes. Approximately 60% of approvals through the OverdraftMe lender panel involve businesses with some ATO exposure. What matters is whether you have a formal payment plan in place and are servicing it. Every application is assessed case by case.
No - the opposite. A formal ATO payment plan that you are servicing on time is generally acceptable to non-bank lenders, because it converts an unmanaged liability into a managed obligation with a payment history. Unmanaged, accumulating ATO debt is what blocks approval.
No. From 1 July 2025, the ATO's general interest charge (GIC) and shortfall interest charge (SIC) are no longer tax deductible. Business overdraft interest used for business purposes generally remains deductible - speak with your accountant about your circumstances.
Yes, assume they will. Your business bank statements show ATO payments and payment plan instalments, and lenders ask directly about tax debt on application. Disclose it upfront with the plan details - undisclosed ATO debt discovered in statements reads far worse than managed, disclosed debt.
A Director Penalty Notice is issued by the ATO and can make company directors personally liable for unpaid PAYG withholding, GST, and Superannuation Guarantee Charge.
The ATO issued 84,529 Director Penalty Notices in the 2024-25 financial year, covering $5.5 billion in liabilities. This represented a 136% increase over the prior year.
Yes, business overdraft interest is fully deductible under Section 8-1. Note that ATO payment plan interest has not been deductible since 1 July 2025, making overdraft financing more tax efficient.
Typical decisions come back in 1-4 hours during business hours. Same-day funding is available for complete applications. Bank overdrafts take 4-6 weeks.
You have 21 days to pay the debt, appoint a voluntary administrator, appoint a Small Business Restructuring practitioner (under $1M debt), or appoint a liquidator. Seek specialist advice immediately.
Personal liability is already locked in. The 21-day options do not apply. You can still pay the debt or successfully defend it, but appointing an administrator does not remove liability. Specialist legal advice is essential.
Yes, if the facility size is sufficient. Many clients draw down their overdraft to settle an ATO debt in full, then repay the overdraft through normal trading cash flow over 6-12 months.
Often the maths favours it. The general interest charge is 11.43% p.a. for July to September 2026 and no longer tax deductible, while interest on commercial finance used for business purposes generally remains deductible, which narrows the after-tax gap even at overdraft rates of 14.55% to 25% p.a. Clearing the debt also removes the ATO exposure lenders scrutinise. Every application is assessed case by case, and this is general information, not tax advice - talk to your accountant.
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John Pierre Saliba · Credit Representative of Lend and Loan Pty Ltd · ACL 511092 · MFAA · AFCA