Business lending

ATO Debt Relief: Options for Australian Businesses

ATO debt relief is an informal search term for the ways an Australian business can manage or clear an outstanding tax debt. It is not the name of a single government program. Common routes include discussing arrangements directly with the ATO or paying the debt with business finance secured against real estate, for amounts from $20,000 to $5,000,000, with funds able to be paid straight to the ATO.

If a property-secured loan is one of the options being considered, see if you qualify.

Key takeaways

• “ATO debt relief” describes a range of approaches to a tax debt, and current ATO information is on its business pages.
• HomeSec lends only for business and investment purposes, and clearing a business tax debt is a business purpose.
• Loans are secured by a first or second-ranking mortgage over residential, commercial or rural property, or vacant land.
• Funds can be sent to the borrower’s account or directly to the ATO.
• Every application depends on the lender’s assessment, and outcomes are never certain.

What does ATO debt relief generally mean?

ATO debt relief is a general phrase, not a formal scheme. People use it to describe any way a business might reduce the pressure of tax owed, from arrangements made with the ATO to paying the balance with outside finance.

The ATO publishes current information about tax debts and the arrangements it may offer on its business pages. Those pages are the starting point for the rules, eligibility and processes that apply to a particular business.

Each business’s circumstances are different. The result depends on decisions made by the ATO or by a lender, not on the label attached to the option. A lender will not promise approval, and eligibility depends on the lender’s assessment.

This article is general information. It does not replace advice from an accountant or registered tax agent, who can look at the full picture of a business’s tax position.

What are the common ways businesses approach an ATO debt?

Most businesses look at a few broad routes, often in combination. Each one works differently, and an overview of each option and what it actually does can help in understanding them.

• Talking to the ATO. The ATO can discuss the debt and any arrangements it makes available. The details and eligibility are set by the ATO.
• Government business resources. business.gov.au covers finance and funding topics for Australian businesses, which can help in understanding the wider options.
• General borrowing guidance. Moneysmart, run by ASIC, explains how business borrowing works and what it can cost.
• Business finance. Some businesses pay the debt using a loan secured against real estate. This route is explained below.
• Professional input. An accountant or tax agent can help work through which route fits the business’s records, cashflow and obligations.

Some businesses face specific pressure points, such as hardship situations where the taxpayer is a company. HomeSec’s page on ATO hardship for companies covers that topic.

How can a property-secured business loan pay an ATO debt?

A property-secured loan can clear the tax balance in one payment, which leaves the business with a loan to manage instead of the ATO debt. HomeSec provides credit wholly and exclusively for business and investment purposes, and paying a business tax debt fits that requirement.

HomeSec offers tax debt loans to pay the ATO, and the key features are listed below.

• Amount: loans run from $20,000 to $5,000,000.
• Where the money goes: funds can be paid to the borrower’s own account or directly to the ATO.
• Term: there is no minimum or maximum term, and loans start from one month. The borrower picks the term and can extend it or repay early.
• Repayments: repayments are interest-only. Alternatively, interest can be capitalised for up to 6 months, which means there may be nothing to pay in the first 6 months.
• Pricing: the interest rate is worked out for each scenario, based on the loan amount and the security offered.

HomeSec has been lending since 2004.

How does a loan compare with an ATO arrangement?

The two routes differ mainly in who sets the terms and what is needed to qualify. The table below uses only HomeSec’s approved product details and the ATO’s own published guidance.

Who can borrow, and what security is used?

Eligibility centres on two things: the money must be used for a business purpose, and there must be real estate to secure the loan.

• Borrowers: companies, trusts and sole traders can apply, and start-ups are included.
• Security: residential, commercial or rural property, or vacant land, can be offered under a first or second-ranking mortgage. One loan can be secured by more than one property, and the borrower’s home can serve as security.
• LVR: lending goes up to 80% of value on residential security and up to 70% on commercial security. LVRs are lower on large acreage and may reduce on properties worth less than $800,000.
• Paperwork not needed: HomeSec does not require cashflow records, a sworn valuation, financial records, a minimum trading period or a serviceability test.
• Credit history: HomeSec considers credit history, but it never disqualifies an applicant by itself. Defaults, arrears and thin files do not automatically rule a borrower out, and eligibility depends on the lender’s assessment.

HomeSec cannot help where there is no real-estate security, where the new loan would rank third behind two existing mortgages, or where the funds are for personal or domestic purposes.

What fees and repayment features apply?

HomeSec keeps its fee structure short, and most common loan fees do not apply.

• Commitment fee: a small commitment fee applies. It is payable only once the loan is conditionally approved.
• Valuation: HomeSec does not charge valuation fees, because it assesses property value itself rather than using valuers.
• Ongoing: there are no monthly, line or account-keeping fees.
• Repaying early: no early exit fee applies. If the loan is repaid during the capitalised-interest period, the unused months of interest are rebated.
• Extending: extending the loan involves no extension, rollover or legal fees, and no rewrite of the loan.
• Partial repayments: once the capitalised-interest period ends, ad-hoc paydowns can be made from $10,000.

Repayments are not collected by daily or weekly direct debit.

How does the application process work?

The process has three stages, and the first is a conversation.

1. Describe the deal. The borrower explains the amount, the purpose, the timing, the property and how the loan will be repaid. A Lending Manager usually gives an indicative answer on that call within minutes. The seven details needed are the property’s rough value (an owner’s own estimate is fine), its address, what is owed on it and to whom, the amount to borrow, the term, how many people are on the title, and what the money is for.
2. Conditional approval. This stage needs photo ID, a rates notice and the most recent mortgage statement. Gathering them takes about fifteen minutes.
3. Funds released. Funds can be released in as little as 24 hours from a clean, complete scenario, with a typical range of 24 to 72 hours, and can go directly to the ATO. Every application remains subject to assessment and approval.

When can a secured loan suit, and when is it not the answer?

A secured loan is one tool among several, and in many situations it is not the right tool.

In general terms, it may be relevant where a business has real-estate security, a clear business purpose and a defined plan to repay the loan. It may also come up where an earlier arrangement has fallen through. HomeSec’s page on a defaulted ATO payment plan covers that situation.

A loan is not the answer in some cases:

• An arrangement made directly with the ATO may be enough on its own, and borrowing adds its own costs.
• There is no property to offer as security.
• The loan would sit third behind two existing mortgages.
• The money is needed for personal or household purposes.

An accountant or tax agent can help weigh these points against the business’s actual position.

What should be weighed up before using finance for a tax debt?

Borrowing does not remove the debt. It moves the debt from the ATO to a lender, and a mortgage places the property at risk if the loan is not repaid.

• The exit plan: how the loan will be repaid is part of the information HomeSec asks for at the first step. A realistic exit, such as a sale or a refinance, is central to the decision.
• Regulation: credit for business and investment purposes is not regulated under the National Consumer Credit Protection Act 2009 (the NCCP Act). The protections available to consumer borrowers do not apply.
• Cost: borrowing comes with interest and fees, and Moneysmart explains how those costs work.
• Independent advice: an accountant, tax agent or legal adviser can review the decision before anything is signed.

For general enquiries, HomeSec can be reached on 1300 93 83 87, Monday to Friday, 8:30am to 5:30pm Melbourne time.

Ready to take the next step?

If a property-secured loan is on the list of options for an ATO debt, the first step is a short conversation about the property and the tax balance. Having the seven details on hand helps: the property’s rough value and address, what is owed on it, the amount, the term, who is on the title, and the purpose. It takes a few minutes to start your application, and eligibility depends on the lender’s assessment.

No obligation. Eligibility is subject to assessment.

FAQ

Can a business loan be used to pay an ATO debt?

Yes, provided the funds are for a business purpose and the loan is secured by real estate. HomeSec lends wholly and exclusively for business and investment purposes, and clearing a business tax debt fits that requirement. Loan amounts range from $20,000 to $5,000,000. Every application is assessed on its own merits, and eligibility depends on the lender’s assessment rather than on the purpose alone.

Can funds be paid directly to the ATO?

Yes. When a loan is released, the funds can be sent straight to the ATO instead of to the borrower’s own account. This lets the tax balance be paid in one transaction. The ATO’s business pages explain how payments to the ATO are handled and where to find the current balance. An accountant or tax agent can confirm the amount owing before settlement.

Is it possible to borrow to pay a tax debt with bad credit or defaults?

It can be. HomeSec considers credit history, but it never rules an applicant out by itself, and defaults, arrears or thin files do not automatically exclude a borrower. The loan still needs real-estate security and a business purpose. Eligibility depends on the lender’s assessment of the whole scenario, including the property and how the loan will be repaid.

Are financial statements or tax returns needed to apply?

HomeSec does not ask for cashflow records, financial records, a sworn valuation, a minimum trading period or a serviceability test. Conditional approval requires photo ID, a rates notice and the most recent mortgage statement, which takes about fifteen minutes to gather. The ATO may have its own requirements for any arrangement made directly with it.

How long does it take for funds to be released?

Funds can be released in as little as 24 hours from a clean, complete scenario, with a typical range of 24 to 72 hours. The timing depends on how complete the information is and on the lender’s assessment, and all applications remain subject to approval. A Lending Manager usually gives an indicative answer on the first call, often within minutes.

This is general information only and does not take into account your objectives, financial situation or needs. All applications are subject to lending criteria, assessment and approval. Fees and charges may apply.