Paying an ATO tax bill you cannot cover from cash flow

Tax is the bill that always arrives and rarely moves. A big sales quarter can produce a GST figure larger than anyone budgeted for, and a year of growth can bring an income tax assessment the account cannot cover in one payment. Running short at tax time happens to plenty of well-run businesses. What matters is moving early and picking the route that costs least over the months ahead.

Lodge, even if you cannot pay

Before thinking about money, get the paperwork in. A lodged BAS with a balance owing is a problem you can solve; an unlodged one invites penalties, makes the ATO less accommodating and makes lenders wary. If lodging on time is genuinely impossible, speak to the ATO or your tax agent before the due date, not after.

The two routes to paying the ATO

Paying by instalments. Eligible businesses can often agree a schedule of payments with the ATO, and many arrangements can be made online. There is no new credit involved. However, general interest charge is added daily to whatever is still owed, and for income years beginning on or after 1 July 2025 you can no longer claim it as a deduction. Miss a payment and the arrangement can be cancelled, with stronger recovery steps to follow.

Borrowing to pay in full. An unsecured or property-secured loan pays the ATO balance off immediately. Interest charges on that debt stop, the threat of firmer ATO action goes away, and the debt cannot be reported to credit reporting bodies. In return you pay the lender’s charges, which you should set against the interest the ATO would add over the same period.

For a detailed side-by-side, read ATO payment plans versus business loans.

Due date coming and the account is short? Start a 60-second enquiry and let us know when the bill is due. Enquiring involves no credit check.

Where borrowing tends to win

Funding is usually the better tool when the bill comes from a genuinely profitable stretch and the cash will flow back over the next few months; when instalments would be too heavy for the business to carry; when there is a real chance of credit reporting or escalating recovery action; and when unpaid PAYG withholding, GST or super could expose directors personally. In those situations, paying the ATO and repaying a lender on a schedule matched to your income is usually tidier and safer.

Where instalments tend to win

An arrangement with the ATO often makes more sense for a smaller balance, when the instalments fit comfortably, when the business has no other use for extra credit and when the interest added across the arrangement totals less than a loan would cost. Some owners use both: instalments for part of the balance and a loan for the remainder.

How much is available for a tax bill

Unsecured facilities generally range from $5k to $500k and are sized from turnover and bank statements. Bigger balances, or situations where credit history has taken a hit, can suit property-secured loans from $20k to $5m. Secured amounts of $20k to $250k can be possible on the same day, and up to $5m can be possible within 24 to 48 hours. More on secured business loans.

Questions a lender will ask

Be ready to explain what kind of tax is owed and how much, whether every BAS and return has been lodged, whether an arrangement already exists and whether it has been kept, and why the bill could not be paid from cash flow. A statement from the ATO portal is the single most helpful document. Lenders will also want to hear how future tax will be handled, so describe how you plan to put it aside. See business loans with ATO debt.

Preventing the next shock

Most tax surprises happen because GST and PAYG withholding get spent as everyday working capital. The cure needs discipline more than cleverness: transfer the tax share of each sale and each pay run into a separate account as soon as it comes in. Our guide on setting aside tax from every sale shows how, and BAS and super payments sets out when each obligation falls due.

Personal risk for directors

In a company, unpaid PAYG withholding, GST and super guarantee can become a director’s personal problem through director penalty notices. If you sit on the board and tax is going unpaid, get advice quickly and read director penalty notices explained.

Keep the ATO in the loop

The ATO generally responds better to businesses that make contact early. It may agree instalments, and sometimes other support is available for businesses in hardship. A tax agent can often handle these conversations for you. Write down each call and keep copies of any arrangement, because a lender will ask for them too.

An illustrative example

An online homewares store in Perth had its best year yet, and its income tax assessment landed in the same month as a large final-quarter GST bill. Cash reserves fell well short. Instalments would have tied up the money needed to buy stock before the Christmas rush. The owner took a twelve-month unsecured loan instead, paid the ATO in one transfer so no more interest accrued, and set up a dedicated tax account that now receives the GST portion of every order.

Pay the tax and get back to business

If a tax bill is due and the account will not stretch, send us the amount, the due date and whether your lodgements are current. Enquiring involves no credit check, your details are not shopped around to multiple lenders, and a real person reads every enquiry. Accurate figures let us compare funding with an instalment arrangement fairly. Apply now.