The Tax Debt Trap: What It Means for Loans and Lending

Tax debt has become a hot topic of conversation across the finance and lending world, particularly for small business owners. With FY24 business tax return lodgements due in mid-May and March quarter BAS payments due at the end of June, many business owners are now facing the reality of tax debt, just as lending conditions remain tight.

It doesn’t matter if you’re looking to refinance, invest, or simply stay afloat, it’s essential that you understand how tax debt can affect your options, and what strategies are available to help. The team at AAA can help with that.

Why Tax Debt Matters in Lending

Tax debt can significantly impact a borrower’s ability to secure finance. Lenders will often view outstanding ATO liabilities as a red flag, indicating financial instability or poor cash flow management. This is particularly critical for self-employed borrowers, where full financial disclosure and a clean credit history are essential for a positive outcome.

To make matters more complex, if the ATO discloses a client’s debt to a credit reporting agency, it can not only hurt their chances of securing a loan, but also damage business relationships with suppliers and creditors.

Upcoming Tax Law Change: What You Need to Know

From 1 July 2025, businesses will no longer be able to claim an income tax deduction for ATO interest charges. This legislative change will make ATO debt more expensive to carry and reinforces the importance of acting early to manage or restructure existing debt.

For many, now is the time to speak with a qualified tax accountant and consider refinancing or consolidating that tax debt into a structured loan facility.

Tools and Strategies That Can Help

If you’re feeling overwhelmed by tax debt, there are smart ways to take control. Here are some solutions that could make a big difference:

Refinancing Tax Debt into a Loan Facility 

By converting tax debt into a structured loan, clients may benefit from:

• Lower interest rates compared to the ATO’s general interest charge

• More flexible repayment terms

• The ability to claim interest as a tax deduction for business-related debt

Using Specialist Tax Debt Funding Solutions 

There are lenders who specialise in tax debt funding, helping businesses restructure their liabilities without immediately affecting cash flow or operations. These can be especially useful for clients who are mid-way through BAS payments or approaching EOFY pressures.

Working with a Broker Who Understands Business 

This is where the value of a good broker really shines. We can help:

• Identify appropriate lenders for our clients with tax debt

• Strategically position an application to improve outcomes

• Coordinate with our client’s accountant or advisor to ensure a holistic approach

Take Action Early

Waiting until the ATO takes further steps - such as applying penalties, compounding interest, or reporting the debt to credit agencies - can have serious consequences. By acting now, your clients can access more options and potentially avoid long-term financial strain.

If you’ve got clients feeling the pinch of upcoming BAS deadlines or EOFY tax debt, reach out to our team. We’re here to guide you through the solutions and ensure your clients are in the best possible position moving forward.

As tax debt becomes an increasingly important factor in lending decisions, proactive planning can make all the difference. Whether you're a borrower navigating finance options or a broker supporting clients through complex scenarios, understanding how tax obligations impact loan eligibility is essential.

At AAA Mortgages, we specialise in structuring lending solutions that work — even when tax debt is part of the picture.

Book an appointment with us today, we’re here to help.