Yes, if the ATO debt is on a formal payment plan. Most non-bank lenders on the OverdraftMe panel accept current ATO payment plans as long as you are up to date with the agreed instalments. Unpaid, unmanaged ATO debt with no plan is harder, but not impossible with the right lender.
ATO Payment Plan vs No Plan: How Lenders See It
There is a massive difference between managed and unmanaged ATO debt in a lender's eyes. Here is how they view each scenario.
| Scenario | Lender View | Approval Odds |
|---|---|---|
| ATO payment plan, current | Manageable. Shows responsibility. | Good (most non-bank lenders) |
| ATO payment plan, behind | Concerning. Why are you behind? | Moderate (specialist lenders) |
| ATO debt, no plan | Red flag. Shows avoidance. | Low (specialist only) |
| DPN issued | Serious. Director personally liable. | Very low without property security |
ATO debt and business finance
Key point: If you have ATO debt and no payment plan, set one up before you apply for business finance. It takes one phone call to the ATO (13 11 42) and immediately improves your approval odds with non-bank lenders.
What Lenders Check About Your ATO Debt
When you disclose ATO debt on your application, lenders will want to see the following.
- Total amount outstanding: How much do you owe the ATO in total?
- Payment plan details: What is the agreed instalment amount and frequency?
- Payment history: Are you up to date on the plan? Any missed instalments?
- Type of debt: Is it GST, PAYG, income tax, or super guarantee?
- Ratio to revenue: How does the ATO debt compare to your monthly revenue?
A business turning over $40,000/month with a $25,000 ATO debt on a $2,000/month payment plan is a straightforward approval for most non-bank lenders. The same business with $120,000 in ATO debt would need specialist consideration.
Director Penalty Notices: The Serious Risk
If the ATO issues a Director Penalty Notice (DPN), it makes directors personally liable for unpaid PAYG withholding, super guarantee charge, and GST. This changes the lender's risk assessment significantly.
A DPN gives you 21 days to either pay the debt, set up a payment plan, or appoint an administrator. If you do not act within 21 days, the penalty becomes a "lockdown DPN," and the only way to discharge it is to pay the full amount.
Worked Example: Clearing $45,000 ATO Debt with an Overdraft
Profile: Construction company, $60,000/month revenue, $45,000 ATO debt (GST + PAYG), currently on a $3,500/month ATO payment plan, Equifax 570.
Strategy: Apply for $80,000 overdraft. Use $45,000 to clear ATO debt in full. Use remaining $35,000 as working capital.
Overdraft cost: $45,000 x 22% p.a. = $9,900/year in interest if fully drawn. But as revenue flows in, the drawn balance reduces.
ATO cost avoided: $45,000 x 11% GIC = $4,950/year, plus the risk of DPN escalation.
Net benefit: ATO debt cleared immediately. No more DPN risk. GIC stops accruing. Single manageable facility instead of juggling ATO and business cash flow separately.
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Check your options →How Much Can You Borrow with ATO Debt?
Your borrowing capacity is reduced by the ATO debt because lenders factor the ATO payment plan instalments into your serviceability calculation. Here is a rough guide.
- ATO debt under $20,000: Minimal impact. Most lenders treat this as normal business operations.
- ATO debt $20,000-$50,000: Moderate impact. Expect 10-20% reduction in available limit.
- ATO debt $50,000-$100,000: Significant impact. Specialist lenders needed. Property security helps.
- ATO debt above $100,000: Limited options without property. Talk to broker for case-by-case assessment.
Using an Overdraft to Pay Off ATO Debt
This is a common strategy and it works well when the numbers stack up. Here is why businesses choose to clear ATO debt with an overdraft.
- Stops the GIC: The ATO charges a General Interest Charge of roughly 11% p.a. on outstanding amounts. Clearing the debt stops this immediately.
- Removes DPN risk: No ATO debt means no risk of director penalty notices.
- Simplifies cash flow: Instead of juggling ATO instalments and business expenses, you have one facility with one payment.
- Improves ATO relationship: A clean slate with the ATO makes future BAS lodgements and compliance simpler.
- Revolving access: Unlike a term loan, an overdraft lets you redraw. As you pay it down, the funds become available again for other business needs.
The trade-off is that overdraft rates (18-24% p.a.) are higher than the ATO's GIC (~11%). But the GIC does not account for the enforcement risk, the stress, the impact on your credit profile, or the opportunity cost of not having working capital available.
Important: Not all lenders allow you to use facility funds to clear ATO debt. Disclose your intention upfront. Your broker will match you with a lender whose policy allows this. Read our ATO debt guide for more detail.
Frequently Asked Questions
There is no hard cutoff, but ATO debt above 30% of your annual revenue makes approval difficult. A business earning $300,000/year with a $50,000 ATO debt on a payment plan is manageable. The same business with $150,000 in ATO debt would struggle.
Yes. Many businesses use an overdraft or business loan to clear ATO debt in one payment, then repay the overdraft from cash flow. This can be cheaper than the ATO's general interest charge (GIC) of around 11% p.a., depending on your overdraft rate.
A DPN makes directors personally liable for unpaid PAYG withholding, superannuation guarantee charge, and GST. If you receive a DPN and do not act within 21 days, the ATO can pursue you personally for the company's tax debt. This makes getting finance much harder.
Yes. Most lender applications ask about ATO debt directly. Non-disclosure can result in the facility being cancelled if discovered later. It is always better to be upfront. Non-bank lenders deal with ATO debt situations regularly.
The ATO does not report payment plans to Equifax. However, if the ATO issues a default assessment or takes legal action, that can appear on your credit file. Maintaining a current payment plan and staying up to date prevents this.
General information only. Not financial advice. Credit subject to lender assessment. All rates, fees and terms quoted are indicative only and subject to change based on your individual circumstances, credit profile and lender policy. OverdraftMe is a credit representative of Lend & Loan Pty Ltd (ACL 511092).
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