The tax arithmetic changed on 1 July 2025
Interest on borrowing used for business purposes is generally tax deductible in Australia, while from 1 July 2025 the ATO's General Interest Charge is not. That change altered the arithmetic of carrying a tax debt against refinancing it into commercial credit. Deductibility depends on individual circumstances and HomeSec are not tax advisers.
We are not tax advisers. Deductibility depends entirely on your circumstances and on how the borrowing is actually used. Nothing below is tax advice, and the comparison it describes is one to run with your accountant rather than with a lender. What we can do is fund the payment quickly.
For years, carrying a debt to the Australian Taxation Office was partially subsidised. The General Interest Charge accruing on the balance was tax deductible, so the effective cost of leaving money owing was meaningfully lower than the headline rate suggested. Plenty of otherwise well-run businesses treated the ATO as a cheap line of credit for precisely that reason.
From 1 July 2025 that deduction is gone. The General Interest Charge and the Shortfall Interest Charge are no longer deductible.
What that changed
The after-tax cost of an ATO balance rose overnight, without the headline rate moving at all. Meanwhile, interest on borrowing used for business purposes generally remains deductible.
That is the whole point. Two costs that used to be treated the same way by the tax system are now treated differently, and the comparison a business should run is no longer rate against rate — it is after-tax cost against after-tax cost.
For a profitable business carrying a large balance, refinancing an ATO debt into commercial credit compares very differently than it did two years ago. For a business with no taxable income to shelter, it may not change much at all. Which is exactly why this is a question for your accountant and not for us.
The reasons that have nothing to do with tax
The deductibility change is the newest reason to deal with a tax debt rather than carry it. It is not the strongest one. Three others matter more:
Debt disclosure. The ATO can report a business tax debt to credit reporting bureaus where the business has an ABN, owes $100,000 or more overdue by more than 90 days, and is not effectively engaging with the ATO about it — after 28 days’ written notice. Keeping a payment plan current is what stops that clock. Once reported, the balance is visible to every lender, supplier and insurer who searches you, and it is almost always discovered at the worst possible moment, mid-application for something else.
Director Penalty Notices. A DPN can make directors personally liable for unpaid PAYG withholding, GST and superannuation. A lockdown DPN cannot be remitted by appointing an administrator. The response window is short and it is unforgiving.
Garnishee notices. The ATO can require your bank or your debtors to pay it directly, without a court order.
None of those three are priced into a comparison of interest rates, and all three are why people call us with eleven days left rather than eleven weeks.
What we do
HomeSec funds ATO debts from $20,000 to $5,000,000 against property equity, paid directly to the Tax Office using your payment reference number, generally within 24 hours. Paying the ATO directly matters: the balance clears and the interest stops on the day of settlement rather than whenever a transfer happens to be made.
An outstanding ATO balance is one of the most common reasons a business owner is on the phone to us, and it is not a reason for us to decline. We do not require tax returns, current BAS lodgement, or a clean credit file. A defaulted payment plan does not affect our assessment.
This is precisely where a private lender and a bank diverge. A bank sees an ATO debt as an adverse credit event and generally stops. We see it as the problem the loan exists to solve.
Reviewed by Catriona Anderson, General Manager