Second mortgage for ATO debt: clearing the tax bill with equity

Why use property equity to pay the ATO?

Tax debt is unusual. It keeps accruing interest, it can follow directors personally, and it can be reported to credit bureaus. It also tends to arrive in lumps: a big BAS quarter, an amended assessment, a year where PAYG instalments fell behind. Many owners with tax debt also own property with plenty of equity. A second mortgage connects the two without disturbing the first loan.

The case has strengthened recently. The ATO confirms that general interest charge (GIC) and shortfall interest charge (SIC) incurred on or after 1 July 2025 can’t be claimed as a tax deduction. And debts on a payment plan continue to accrue GIC, which compounds daily. The after-tax cost of simply leaving the debt with the ATO is higher than it used to be.

How does the ATO’s own process affect timing?

Three ATO rules often set the clock:

ATO rule	What it means for you
Payment plans	Businesses owing $200,000 or less may be able to set up a plan online. GIC keeps accruing while you pay.
Credit reporting	The ATO may report a business’s tax debt to credit reporting bureaus if it has an ABN, at least $100,000 overdue by more than 90 days, and isn’t engaging with the ATO.
Director penalties	Directors have 21 days to act once a DPN is issued. For amounts not reported within three months, only paying the company’s debt remits the penalty.

A reported tax debt can make future bank finance harder to get. A director penalty turns a company problem into a personal one. Both are reasons to move before the deadlines, not after.

How is a second mortgage for tax debt structured?

The mechanics are the same as any second mortgage business loan, with a few tax-specific touches:

1. Get the exact figure. Download an ATO statement of account or ask your tax agent for the current balance, including GIC.
2. Size the loan to clear the debt, plus any costs, leaving room in the buffer. Check the combined LVR with our equity and LVR calculator.
3. Pay the ATO directly from settlement using your payment reference number, so the money goes exactly where it should.
4. Plan the exit. Often a bank refinance once the tax debt is gone and lodgements are up to date, or repayment from trading.

If the debt is still growing, for example because the latest BAS isn’t lodged, it usually makes sense to bring lodgements up to date as part of the plan. Lenders find it easier to lend when the full picture is on the table.

Facing a deadline from the ATO? Tell us the amount and the date and a specialist will say what’s possible against your property.

Will a lender really consider existing ATO debt?

Yes, case by case. Tax debt is a common reason owners look at a second mortgage in the first place, and specialist lenders see it constantly. What they want to understand:

• How the debt arose: a one-off bad quarter reads differently from years of arrears.
• Whether lodgements are up to date.
• Whether the loan clears the debt fully, or only partly.
• What stops it recurring: better PAYG withholding habits, a bookkeeper, a separate tax account.
• The exit.

Past credit issues are also looked at case by case. See bad credit second mortgages for how that’s weighed.

Illustrative example: clearing a tax debt before it’s reported

A building company owes the ATO $260,000 across GST and PAYG withholding. About $140,000 has been overdue for more than 90 days and the director has been juggling calls. The director owns a home worth around $1,300,000 with $480,000 owing. A $290,000 second mortgage pays the ATO in full with an allowance for costs, taking combined LVR to around 59%. The exit is a refinance with the director’s bank in 12 to 18 months, once two clean BAS years show in the financials. All figures are illustrative.

When is a payment plan the better choice?

A second mortgage isn’t automatically the answer. A payment plan may suit you better when:

• the debt is small relative to monthly cash flow and will clear quickly;
• you don’t own property with enough equity;
• the ATO has already agreed a manageable plan and you’re meeting it comfortably.

For trading businesses without spare equity, an unsecured facility of $5,000 to $500,000, sized on turnover and bank statements, may also fit. See second mortgage vs unsecured business loan.

What about the cost?

We don’t publish rates, because every file is priced on its own merits. Compare options by estimated total cost in dollars, and compare that to what the ATO debt would cost you if left on a plan, after tax, now that GIC isn’t deductible. Our page on second mortgage costs sets out the fees to ask about.

Want the ATO off your back? Start with a 60-second enquiry

We work with business owners carrying tax debt all the time, and we don’t flinch at it. The quickest way to find out what your property can do is a short enquiry: about 60 seconds, and there’s no credit check when you first enquire.

Your details don’t get shopped around to a crowd of lenders. One specialist reads your file, works through the ATO timeline with you and calls you back. Please enter the ATO balance and your property figures as accurately as you can; it lets us structure a loan that clears the debt in one go.

Clear my ATO debt with equity →