Whether you've already got a tax debt on a payment plan, or you just haven't lodged yet, the ATO doesn't wait. And as of 1 July 2026, sitting on it costs more than it used to.

The Cost of Waiting in 2026

The ATO's failure-to-lodge penalty is charged in "penalty units," and from 1 July 2026 that unit rose to $364, up from $330. Here's what that means in practice for an individual or small business:

  • $364 for every 28-day period (or part of one) that a return or BAS is overdue
  • Capped at 5 penalty units — a maximum of $1,820 per late document
  • On top of that, general interest charge (GIC) applies to any unpaid tax debt, currently running at 11.43% per annum, compounding daily
  • Entering a payment plan doesn't pause the GIC — it keeps accruing on the outstanding balance for as long as the debt remains unpaid

What that looks like in real numbers: say you've got a $20,000 tax debt that's been sitting overdue for 12 months, and you haven't lodged 4 quarterly BAS over that time. The GIC alone on that $20,000 adds up to roughly $2,300 for the year. The late lodgment penalties on those 4 BAS — most of them capped out at $1,820 each the longer they sit overdue — add up to close to $6,900 on top of that. That's around $9,200 in penalties and interest, on top of the $20,000 you already owed, before you've even started paying any of it down.

This is a simplified illustration only, using a flat rate and even lodgment spacing — actual amounts depend on your specific dates, balance and the rate in effect at the time. Penalty and interest rates are reviewed by the ATO regularly. This is general information only, not tax advice — speak with your accountant about figures specific to your situation.

"Delaying lodgment because you're dreading the bill doesn't make the bill smaller — it just adds a penalty and daily-compounding interest on top of it."

Paying It Out May Cost You Less Than Leaving It

That's why paying the debt out — instead of just keeping up a payment plan — is usually the cheaper option. Every month it sits there, interest keeps piling on top. Clear it in one hit with a loan, and that cost stops.

Depending on how the loan is set up, it may be possible to roll the ATO debt into it — paying out the ATO in full and getting rid of that monthly payment plan altogether. For the right borrower, that frees up cash flow and makes borrowing easier at the same time.

The problem is most banks want two years of finished tax returns before they'll even look at you — and if your returns are overdue, that's a brick wall. This is where alt-doc lending comes in: it lets your actual cash flow do the talking, through BAS statements, bank statements, or a letter from your accountant confirming your income and ability to service the loan, instead of waiting on lodgments to catch up. Your accountant sorts the tax side, your broker sorts the finance side — at the same time.

Why Mainstream Lenders Say No

Walk into most banks with an ATO payment plan on your file and you're going to struggle. Here's why.

First, your tax debt counts against you. Even if you're on top of it, it drags down how much you can borrow — same as a credit card limit does, even if you never touch it.

Second, your ATO repayments count as a bill you're already paying. If you're handing over $1,500 a month to the ATO, most lenders knock that straight off your income before they even work out what you can borrow. That alone can kill an application before it starts.

Third — and this one stings — banks usually want two years of tax returns to prove what you earn. If those were rough years, they don't show where your business is at now. You could be doing well today, and your paperwork's still stuck on the bad years.

What Alt-Doc Actually Is

Alternative documentation lending — "alt-doc" — exists because the standard bank process just doesn't work for a lot of self-employed people.

Instead of two years of tax returns, alt-doc lenders will look at BAS statements, business bank statements, or a letter from your accountant confirming your income and ability to repay the loan. That shows how your business is doing right now, not what your old tax returns say — which matters a lot if there's been a rough patch in the past.

Who This Might Suit

  • Self-employed borrowers who've delayed lodging a return and don't want to rush it just to satisfy a lender
  • Self-employed borrowers looking to pay out an ATO debt entirely through the loan, rather than keep servicing an ongoing payment plan
  • Sole traders, partnerships, companies or trusts trading strongly now, even if recent tax returns don't reflect it
  • Anyone who's already been declined by their bank because of overdue lodgments or a payment plan on their file
"A debt being managed reads very differently to a lender than a debt being ignored."

What This Looks Like in Practice

Take a self-employed tradie running a small business. A couple of tough years — slow work, rising costs, a client who didn't pay — left them with a decent-sized ATO debt on a formal payment plan. The repayments were eating into their income every month, and when they went to their bank about refinancing, they got knocked back.

The bank saw a problem. A broker who knew alt-doc and commercial lending saw a business turning over solid money, a borrower who'd put a proper plan in place and was keeping up every payment, and a way to actually make it work.

The ATO debt got rolled into the loan. The monthly payment plan was gone. Cash flow improved straight away, and the whole financial picture was a lot simpler.

Details have been changed to protect client privacy.

Things to Be Aware Of

  • Alt-doc loans typically carry slightly higher interest rates than standard loans — that's the trade-off for the flexibility
  • Not every lender will consider an ATO debt, and terms vary a lot between those that do
  • An informal arrangement with the ATO is viewed very differently to a formal payment plan — even if you've fallen behind, borrowing to pay the debt out in full may still be an option
  • Current BAS lodgements can make an application more straightforward, but they're not always a dealbreaker — we've paid out debts well over $100,000 for clients whose lodgements weren't up to date

Questions Worth Asking

If any of this resonates, here are the questions that matter:

  • Would paying the ATO debt out entirely through a loan make more sense than continuing to service a payment plan?
  • Is your ATO debt on a formal payment plan, or an informal arrangement? There's a significant difference in how lenders view these.
  • Are your BAS lodgements up to date?
  • Does your current trading position look stronger than your last two tax returns suggest?
  • Have you spoken to a broker who regularly works with alt-doc and commercial lenders — or have you only been to your bank?

That last one's the question most people skip. Banks only have one credit policy. A broker working across a wide panel of lenders can find the ones who'll actually look at your situation, instead of just running you through a standard filter.