A tax debt with the ATO is more common than most people think, especially for business owners. A slow few months, a big BAS quarter or a tax bill nobody saw coming can leave you owing more than you planned. The good news is that an ATO debt doesn’t automatically rule you out of a home loan. How you’re managing it matters far more than the fact that it exists.

Here’s how lenders look at tax debt, what improves your chances, and the options if the banks have already said no.

Does an ATO debt stop you getting a home loan?

Not necessarily. Lenders mainly want to know three things:

• How much you owe, and whether it’s growing or shrinking
• Whether it’s under control. Are you on a formal payment arrangement with the ATO and keeping up with it?
• Whether you can afford the new loan on top of the tax repayments, or once the debt is paid out

A small debt on a payment plan with a clean repayment history is a very different story to a large, unmanaged debt that keeps rising. Many of the major banks are cautious with any outstanding tax debt, but a number of lenders, particularly specialist and non-bank lenders, will consider it if the full picture makes sense.

Why lenders are cautious about tax debt

From a lender’s point of view, the ATO is a creditor with real teeth. An unpaid tax debt can lead to garnishee notices, director penalty notices for company directors, and in serious cases legal action. It can also signal cash flow pressure in a business. That’s why lenders look closely at how the debt came about and what’s being done about it.

Business tax debts can also show up on credit files. The ATO can report a business’s tax debt to credit reporting bureaus when at least $100,000 is overdue by more than 90 days and the business isn’t actively engaging with the ATO. Businesses on a payment plan that are meeting its terms are excluded. A listing like this makes approval harder, so it’s worth dealing with a growing debt early.

What helps your application

• Get on a formal ATO payment plan and stick to it. Lenders often want to see several months of on-time repayments.
• Keep your tax lodgements up to date. Outstanding returns or BAS are often a bigger problem than the debt itself.
• Get a copy of your ATO statement (integrated client account) showing the balance and repayment history.
• Have a clear explanation of how the debt arose and why it won’t happen again, for example a one-off tax bill after a strong year.
• Ask your accountant for a short letter confirming the arrangement and your current position, if you’re self-employed.

Can you use a home loan to pay out your ATO debt?

Often, yes. If you own property with enough equity, some lenders will let you refinance or top up your home loan and use part of the funds to pay out the tax debt in full. This is a form of debt consolidation, and it can:

• Replace the ATO’s general interest charge with a home loan rate, which is usually much lower
• Turn a short, expensive payment plan into one manageable repayment
• Remove the pressure of possible ATO recovery action

It’s worth knowing that from 1 July 2025, ATO interest charges (general interest charge and shortfall interest charge) are no longer tax-deductible. That makes carrying an ATO debt more expensive than it used to be, and makes refinancing it worth a closer look.

Consolidating isn’t right for everyone. Spreading a short-term debt over a long loan term can mean paying more interest overall, and it uses equity in your home. A broker can run the numbers both ways so you can see the real cost.

Bank or specialist lender?

If your debt is small, on a payment plan and your income is strong and well documented, a mainstream lender may still be an option. If the debt is larger, recent, or you’re self-employed with less conventional income, a specialist lender is often the better fit. They tend to look at the whole story rather than ticking boxes. Rates can be a little higher, but the goal is often to get you into a manageable position and then move to a sharper rate once things settle.

A typical scenario

Take a self-employed tradie who had a big year, underestimated their tax and ended up owing the ATO around $60,000 on a payment plan. Their home has good equity, but the payment plan is squeezing cash flow and their bank won’t increase their loan. A specialist lender could refinance the home loan, pay out the ATO debt in full and roll it into one repayment. That can lower their monthly outgoings and stop the interest charges building. Once they have a year or two of clean records, they may be able to refinance back to a lower rate.
This is an illustrative example only. Every situation, lender and outcome is different.

Frequently asked questions

Will the bank find out about my ATO debt?

Yes, lenders will see it. Your tax returns, notices of assessment, bank statements and in some cases your credit file show tax debts and repayments. Being upfront from the start is always the best approach. A broker can present it properly to the right lender.

Do I need to be on a payment plan to get approved?

In most cases, yes, or you’ll need to show the debt will be paid out as part of the new loan. An unmanaged debt with no arrangement is very hard to get approved.

Can I get a low-doc loan if I have an ATO debt?

Sometimes. Some specialist lenders will consider low-doc applications with a tax debt, especially where the debt is being paid out at settlement. Expect a lower maximum loan-to-value ratio and closer scrutiny of your BAS and bank statements.

Does a business ATO debt affect my personal home loan?

It can. If you’re a sole trader, the debt is yours personally. If you’re a company director, lenders will still look at the company’s position, and directors can become personally liable for some tax debts in certain circumstances.

Talk to us before you apply

Applying to the wrong lender and being declined can leave a mark on your credit file. Before you apply anywhere, speak to a broker who regularly works with self-employed borrowers and tax debt. We’ll look at your numbers, explain your options in plain English and only go to lenders likely to say yes.

General information only. This article doesn’t consider your objectives, financial situation or needs, and isn’t tax or credit advice. Speak to your accountant about your tax position. Home loans are arranged by Stratium Finance Group Pty Ltd (ABN 65 696 556 804), Corporate Credit Representative 578600 of Yellow Brick Road Aggregation Pty Ltd, ACL 390261. All loans are subject to lender approval, terms, conditions, fees and charges.