If you or your business are sitting on an Australian Taxation Office (ATO) payment plan, the numbers changed on 1 July 2025, and many people haven't recalculated.
The General Interest Charge (GIC) that the ATO applies to unpaid tax debt has always been expensive. But until last year, it was at least tax-deductible, which softened the real cost.
That tax deductibility has now been removed on all ATO debt arrangements. The same GIC rate that previously carried an effective cost of around 7.7% for a business on a 30% tax rate now costs the full amount - 10.96% for the April-June 2026 quarter, rising to 11.43% from July 2026 - compounding daily, with no offset.
But if you own property with equity, there may be a smarter way to hold this debt: refinancing to release the equity from your property to clear the ATO debt entirely. This can replace an expensive and now non-deductible charge with a loan that may be both cheaper and deductible.
This article is general information only and does not constitute financial, legal or tax advice. We recommend getting advice from a qualified accountant and solicitor before making any decisions. GIC rates are set by the ATO and reset quarterly – the figures cited reflect rates current at the time of publication.
What changed on 1 July 2025?
Prior to 1 July 2025, the GIC that the ATO applied to overdue tax, including debts under formal payment arrangements, was deductible as a borrowing cost. For a business paying 30% company tax, a GIC rate of 11% had an effective after-tax cost of roughly 7.7%. For a high-income individual on a 47% marginal rate (including Medicare levy), the effective cost was even lower.
That deductibility no longer applies. Under the changes that took effect from 1 July 2025, GIC and the Shortfall Interest Charge (SIC) are no longer deductible for any taxpayer, regardless of entity type.
The result is that an ATO payment plan is now, on a net basis, one of the most expensive forms of debt a business owner can hold. At 10.96% for the April-June 2026 quarter, rising to 11.43% from July 2026, it sits well above most commercial lending rates. And unlike a commercial loan, there is no deduction to soften it.
Let’s put that in concrete terms. Say a business owes the ATO $50,000. At the GIC rate of 11.43%, the annual interest bill will be $5,715. Before July 2025, that interest was tax-deductible, meaning it reduced the business's taxable income by $5,715. At a 30% company tax rate, that deduction was worth $1,715 back, bringing the real after-tax cost down to around $3,850 per year.
From July 2025, that deduction is gone. The full $5,715 comes straight out of the business with nothing back.
For a self-employed person or high-income individual on a 47% marginal rate, the shift is even bigger. On a 47% marginal rate, the deduction was previously worth $2,686, reducing the effective cost to around $3,029. Today, they would pay the same $5,715 as everyone else.
In both cases, that figure compounds daily for as long as the balance remains.
Why most people haven't acted, and why that may be a mistake
Many business owners or self-employed borrowers assume that having an ATO debt closes the door on refinancing entirely. It is a reasonable assumption, as many lenders will decline or penalise an application the moment ATO debt appears on the balance sheet.
But some specialist and non-bank lenders will consider applications where a borrower has ATO debt, provided:
- The debt is on a formal arrangement or can be discharged at settlement
- You can demonstrate sound serviceability
- The loan-to-value ratio (LVR) is within a manageable range
For clients with strong equity in Melbourne property, the mechanics are straightforward: you release equity against your property, the ATO debt is paid out and you are left servicing a commercial loan instead. The rate is likely lower, the debt is consolidated and – if correctly structured – the interest may be deductible where the GIC was not.
But not every broker works in this space, and knowing which lenders are active and how to structure the application makes a big difference.
A potential tax advantage
While the ATO interest charge itself is no longer deductible, the deductibility of a replacement loan depends on the purpose of the borrowed funds – not on the identity of the lender. If an equity release refinance is correctly structured and documented as discharging a business-related tax liability, the interest on that new loan may itself be deductible.
This could mean moving from debt costing 11.43% with no deduction, to a lower commercial rate where the interest works in your favour.
The specifics depend on the nature of the underlying tax liability, how the loan is documented and individual circumstances. While possible, this is not a straightforward process, and the right outcome requires advice from a qualified accountant.
What does this do to your borrowing capacity?
Beyond the rate itself, there is a second reason to consider this option.
An unresolved ATO liability (even one under a formal payment arrangement) can be flagged as a risk when a lender assesses your serviceability. This can impact your borrowing capacity across a portfolio and limit refinancing options on other facilities. With serviceability already tighter after three rate rises in 2026, removing that flag can make a difference to how much you can borrow next. For a growing portfolio, that is often as valuable as the rate savings.
What to consider before making a move
Equity release to clear an ATO debt is not right for everyone, and it requires a careful assessment of your full financial picture.
The exit costs from any existing facility – including discharge fees, break costs on fixed-rate loans and application fees on the new loan – all need to be weighed against the potential savings. The LVR on the new loan is also important as releasing equity increases your total debt against the property, and the structure needs to be workable across different interest rate scenarios.
At AXTON Finance, we work with a panel of more than 30 lenders across both standard and specialist lending, and we can run a thorough comparison using your actual numbers. That means your current GIC balance, your property equity position, your serviceability and your goals – not a generic rate comparison.
Not sure where your current position sits? Our loan health check takes a few minutes and gives you a clear picture of your equity position and borrowing capacity before you have the conversation.
This article is general information only and does not constitute financial, legal or tax advice. We recommend getting advice from a qualified accountant and solicitor before making any decisions. GIC rates are set by the ATO and reset quarterly – the figures cited reflect rates current at the time of publication.
If you or your accountant are managing an ATO payment plan, let us run the numbers on whether your property equity could do a better job. Book a confidential loan review with AXTON Finance today on 03 9939 7576, email getabetterrate@axtonfinance.com.au or get in touch.
