Managing tax debt is becoming a growing concern for Australian small business owners. With the Australian Taxation Office (ATO) taking a tougher stance on debt recovery, many businesses are looking for relief through ATO payment plans.
But in 2025, the process of securing a payment plan is getting more complex and costly. New rules, stricter eligibility criteria, and a significant change to interest deductibility are all factors small business owners must consider before applying.
Black Wattle Tax provides clear, actionable information on what has changed with ATO payment plans, the risks involved, and smarter options for managing tax debt.
What is an ATO Payment Plan?
An ATO payment plan is an arrangement that allows businesses to pay their outstanding tax debt in installments rather than as a lump sum. It helps businesses manage cash flow while remaining compliant with the ATO’s collection process.
Payment plans are typically used for:
- Income Tax Debt
- BAS (Business Activity Statement) Debt
- PAYG Withholding Debt
- GST Debt
What’s Changing for ATO Payment Plans in 2025?
Starting July 1, 2025, one of the most significant changes to ATO payment plans will come into effect: interest on ATO payment plans (known as the General Interest Charge or GIC) will no longer be tax-deductible.
This change means small businesses can no longer claim the interest paid on ATO payment plans as a business expense, increasing the overall cost of managing debt. When paired with the already-high ATO interest rate of 11.36%, this change makes payment plans one of the most expensive debt options available to small businesses.
Key Changes to ATO Payment Plans in 2025
- Loss of tax deductibility on interest from July 1, 2025.
- Higher cost of borrowing, as GIC remains at 11.36%, far higher than typical bank loans.
- More strict eligibility requirements, with the ATO requiring 2 years of financial statements and 12-24 month forecasts for large debts.
- Stronger penalties for defaults, including loss of payment plans and immediate demand for full debt repayment.
These changes make it clear that payment plans are no longer a low-cost, risk-free option for handling tax debt.
How ATO Payment Plans Work
An ATO payment plan allows businesses to pay their tax debt in installments rather than as a lump sum. Payment plans can be arranged online for smaller debts or require a formal credit assessment for larger debts. But before you apply, it’s important to know what you’re getting into.
Payment Plans for Debts Under $200,000
- Eligibility: Streamlined process for compliant businesses.
- Requirements: Online application, 10% upfront payment, and confirmation of repayment method.
- Loan Term: Up to 24 months.
- Interest Charged: 11.36% General Interest Charge (GIC).
Payment Plans for Debts Over $200,000
- Eligibility: Manual review by an ATO officer.
- Requirements:
- 3 years of financial statements
- 12-24 month cash flow forecasts
- Possible collateral (security over company or personal assets)
- Stricter Penalties: If you default on an existing plan, the ATO is unlikely to approve another.
These differences highlight that larger debts are subject to much greater scrutiny. Business owners must be ready to provide detailed financial data and, in some cases, offer up assets as security.
Key Requirements to Qualify for an ATO Payment Plan
Not every business qualifies for an ATO payment plan. The ATO will assess your financial situation to determine if you’re eligible. Key factors they look for include:
- Up-to-Date Lodgements: Your business must have lodged all outstanding BAS, GST, PAYG, and tax returns before applying for a payment plan.
- Ability to Pay: You must prove that you can make ongoing repayments. This is demonstrated through financial statements, cash flow forecasts, and profit and loss reports.
- No Previous Defaults: If you’ve defaulted on an ATO payment plan before, you may be ineligible for a new plan.
Deposit or Upfront Payment: For debts under $200,000, a 10% deposit is required upfront. Larger debts may require a higher deposit or security, such as using business or personal assets as collateral.
Costs of ATO Payment Plans in 2025
ATO payment plans are no longer the “affordable” option they once were. Here’s why:
- Interest Rate of 11.36%
This interest rate is much higher than the interest rates offered by banks or non-bank lenders. For comparison, business loans from banks typically range from 6% to 9%. - Loss of Tax Deductibility
From July 1, 2025, the interest you pay on ATO payment plans will no longer be tax-deductible. This means that, unlike bank loans where the interest can be claimed as an expense, the cost of an ATO payment plan will hit your bottom line harder. - Higher Total Repayment Costs
The combination of a high interest rate and no tax benefits makes ATO payment plans more expensive. Business owners could end up paying thousands more compared to bank loans or other financing options.
Example:
- ATO Debt: $100,000
- Repayment Term: 2 years
- Interest Rate: 11.36% (non-deductible)
Total Interest Cost: Approx. $12,000 – $14,000 over 2 years (non-deductible)
Risks of Applying for ATO Payment Plans
Payment plans offer short-term relief, they come with significant risks:
- Loss of Plan for Missed Payments: If you miss a payment, the ATO may cancel your plan and demand immediate payment of the entire debt.
- Potential Seizure of Assets: For large debts, if you’ve provided personal or company assets as collateral, the ATO can take possession of those assets.
- Impact on Business Loan Applications: Banks and lenders may view businesses with ATO debt as higher-risk borrowers, making it harder to access new finance.
- BAS Refunds Withheld: If you’re on a payment plan, the ATO may withhold any GST or BAS refunds until your debt is fully repaid.
For businesses dealing with large ATO debts or facing cash flow pressures, it may be worth considering alternatives before applying for an ATO payment plan.
Smarter Alternatives to ATO Payment Plans
Given the high interest rates, stricter eligibility, and potential risks, small business owners should explore smarter options. Here are a few alternatives:
1. Refinance Equipment
If your business owns equipment, consider refinancing it to free up cash to pay down ATO debt. Black Wattle Tax can provide advice on how to structure equipment finance to make the interest tax-deductible, unlike an ATO payment plan.
2. Refinance Property
Leverage equity in commercial or residential property to secure a lower-cost business loan. Property-backed loans often have interest rates between 6% and 8%, significantly lower than the ATO’s 11.36% rate.
3. Business Loan or Line of Credit
Instead of relying on the ATO, seek financing through a bank or non-bank lender. Business loans have longer repayment terms and lower interest rates, offering a better solution for cash flow. Black Wattle Tax can help you evaluate your options and ensure your debt structure is tax-effective.
When Should You Avoid ATO Payment Plans?
You should avoid applying for an ATO payment plan if:
- You can qualify for cheaper finance (bank loans, equipment finance, or property loans).
- You have pending BAS refunds that you’ll need access to (the ATO will withhold them if you’re on a plan).
- You need to maintain a clean credit profile for bank loan applications (ATO debt can raise lender red flags).
If you’re unsure about the best path forward, it’s wise to seek professional advice. Black Wattle Tax can help you assess your financial position, structure your debt properly, and explore financing alternatives.
How Black Wattle Tax Can Help
ATO payment plans are no longer the easy solution they used to be. With the loss of tax-deductible interest from July 1, 2025, high interest rates, and stricter eligibility, small businesses need to think carefully before committing.
Black Wattle Tax specializes in helping small businesses manage tax debts and find better financing alternatives. Whether you need help navigating ATO payment plans or want to explore options like refinancing equipment, leveraging property, or accessing business loans, their team can guide you.
Final Thoughts
ATO payment plans in 2025 come with higher costs, more risk, and stricter eligibility criteria. With the interest no longer being tax-deductible, payment plans are now one of the most expensive ways to manage tax debt.
Instead of relying on an ATO payment plan, consider alternatives like refinancing equipment, leveraging property, or securing a business loan. These options can reduce costs, improve cash flow, and help you avoid the financial risks that come with ATO debt.
If you’re looking for personalized guidance on the best way to handle your ATO debt, visit Black Wattle Tax for expert advice and support.
Schedule a FREE 30-minute consultation today to discover how we can help you make strategic decisions and streamline your business operations.
Stay informed and empowered by subscribing to our monthly newsletter, where you’ll receive valuable insights on business advice, investment tips, and strategic tax planning.
Disclaimer: We endeavour to make sure the information provided in this guidance is up to date and accurate. Please note, that the information is only intended to be a guide, with a general overview of information. This guidance is not a comprehensive document and should not be interpreted as legal advice or tax advice. The information is general in nature. You should seek the assistance of a professional opinion for any legal and tax issues related to your personal circumstances.
