Is Your ATO Payment Plan Now Costing More Than a Business Loan?

For years, plenty of business owners have treated an ATO payment plan as a handy, low-fuss way to get through a cash flow crunch. The interest wasn’t cheap, but it was tax deductible, so it didn’t sting too much.

However, since 1 July 2025, the interest the ATO charges on overdue tax can’t be claimed as a deduction. For many businesses, that one change means keeping a debt with the ATO can now cost more, after tax, than borrowing the money to pay it off.

If you’re on a payment plan, or thinking about one, here’s how to work out which option leaves more money in your business.

ATO interest charges stopped being tax deductible from 1 July 2025. The General Interest Charge (GIC) is currently 11.51% a year, compounds daily, and is now a full, after-tax cost to your business. Interest on a business loan used to pay a business tax debt, on the other hand, can generally still be deducted. For a company on the 25% tax rate, that means a deductible business loan would need an interest rate above roughly 15% before it costs more after tax than leaving the debt with the ATO. A payment plan can still suit short-term or smaller debts, but for larger or longer-running debts, comparing the two options properly is now well worth the time.

Why did ATO debt get more expensive?

The ATO charges two main types of interest. GIC applies when tax or super isn’t paid on time, whether that’s a BAS, income tax, PAYG instalments or the super guarantee charge. It’s set at the 90-day bank bill rate plus 7 percentage points, and for October to December 2026 it sits at 11.51% a year. Shortfall Interest Charge (SIC) applies when an amended assessment reveals underpaid tax, and is currently 7.51% a year.

Until 30 June 2025, both could be claimed as a tax deduction. Now they can’t, and that applies to any interest charged from 1 July 2025, even on debts that go back years. For a company paying 25% tax, it means ATO interest now costs around a third more in real terms than it did before.

What’s the break-even rate between GIC and a business loan?

Because GIC is no longer deductible, its after-tax cost is the full 11.51%. If your business borrows to pay off the debt and can claim the loan interest, the after-tax cost of that loan is reduced by your tax rate. For a company on 25%, a loan’s after-tax cost is about three quarters of its interest rate.

Option	Interest rate	Approximate after-tax cost (25% company rate)
Stay with the ATO (GIC)	11.51%	11.51%
Business loan example A	9%	6.75%
Business loan example B	12%	9%
Business loan example C	15%	11.25%

These are illustrative rates only, not quotes. Loan fees, terms and your own tax position all affect the real comparison, so check the numbers with your accountant.

Even a loan at 15% can work out a little cheaper after tax than GIC. And because GIC compounds daily, the true gap is slightly wider than the rates above suggest.

Who can claim the interest on a loan used to pay tax?

The ATO has confirmed that interest on outside finance used to pay a business tax debt can generally still be deducted. How that works depends on your business structure.

Business structure	Can the loan interest generally be deducted?
Company	Yes, where the company borrows to pay its own tax debt
Trust	Yes, where the trust borrows to pay its own tax debt
Sole trader	Yes, for the share of the debt that relates to business income
Partner in a partnership	Generally no, where the partner borrows personally to pay tax on their share of profits

Who borrows the money is the key factor, so take the time to get the structure right before the loan is set up.

When does an ATO payment plan still make sense?

Refinancing isn’t the right answer for everyone. Staying with the ATO can still be reasonable when; the debt is small and you can clear it within a few months, you’re expecting a large payment or refund that will cover it soon, the costs of setting up a loan would outweigh the interest you’d save, or you don’t currently meet a lender’s criteria. The key is making it a deliberate choice, rather than letting a payment plan roll on because it was the easiest option at the time.

What else is at stake besides the interest?

The cost of interest isn’t the only reason to keep an eye on an ATO debt. A few other risks are pertinent:

• Credit reporting. The ATO can report business tax debts over $100,000 that are more than 90 days overdue to credit reporting bureaus, which can make future finance harder to get.

• Director liability. Directors can become personally liable for some unpaid company tax and super.

• Lender assessments. When your business applies for finance, lenders will usually ask about tax debts and payment arrangements and take them into account.

Questions to ask before you decide

Before you stick with a payment plan or refinance, it helps to have answers to these:

• What is the total debt today, including GIC added since 1 July 2025?

• How long will it realistically take to pay off under the current plan?

• Would interest on a loan be deductible for your business structure?

• What rate, fees and term could your business access?

• When is your next BAS due? (The July to September quarterly BAS is due on 28 October 2026, and GIC keeps building every day in the meantime.)

Your accountant can help with the tax side, and a broker can help you see what finance options are available.

A payment plan might feel like the comfortable option, but comfortable isn’t always cheapest anymore. If you’d like to see how refinancing would compare for your business, Key Change Finance can look at options across our panel of lenders and help you find repayments that suit your cash flow.

Get in touch for a no-pressure chat.

General disclaimer: This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not tax advice. Speak with your accountant or tax adviser about your circumstances. Lender terms and conditions, fees, charges and eligibility criteria apply.

Frequently Asked Questions

Can I still claim ATO interest as a tax deduction?

No. GIC and SIC charged on or after 1 July 2025 can’t be claimed as a tax deduction, even if the underlying tax debt is from an earlier year. Interest charged up to 30 June 2025 can still be claimed in the year it was incurred.

What is the difference between GIC and SIC?

GIC is charged when tax or super isn’t paid by its due date, and is currently 11.51% a year, compounding daily. SIC is charged when an amended assessment shows tax was underpaid, covering the period up to the amendment, and is currently 7.51% a year. If an amended amount isn’t paid by its new due date, GIC applies from then on.

Is it cheaper to pay my ATO debt with a business loan?

Often, but not always. Because GIC is no longer deductible and business loan interest generally is, a company on the 25% tax rate could pay a loan rate of up to roughly 15% and still be no worse off after tax than staying with the ATO. Fees, the loan term and your structure all affect the result, so compare the full cost.

Can I refinance an ATO debt if I’m already on a payment plan?

In many cases, yes. Some lenders offer finance designed specifically to pay out business tax debts, including debts already on an ATO payment plan. Approval depends on the lender’s criteria, your financial position and the size of the debt.

What happens if I ignore an ATO debt?

GIC continues to build every day, and the debt can grow quickly. The ATO can report business tax debts over $100,000 that are more than 90 days overdue to credit reporting bureaus, and directors can become personally liable for some unpaid company tax and super.

How often does the GIC rate change?

The ATO updates the GIC and SIC rates every quarter, based on the 90-day bank bill rate. The GIC rate for October to December 2026 is 11.51% a year.