Can I refinance my home loan to pay an ATO tax debt?

A tax debt tells a lender that the business or individual has been using the ATO as a lender of last resort. Major banks have credit policies that either exclude "consolidation of ATO debt" as a purpose or treat any ATO arrears as adverse credit. Non-bank lenders take a different view: the debt is a known amount, paying it out removes an aggressive creditor, and the borrower's position is stronger after the refinance than before. They price for the risk with a slightly higher rate, but they will do the loan.

The specialist lender will want the ATO integrated client account statement showing the balance, any payment plan and whether it is being met, recent BAS lodgements, and an explanation of how the debt arose. A debt caused by a one-off event with lodgements up to date is a far easier file than one where returns are years behind.

Since 1 July 2025 the general interest charge on ATO debt is not tax deductible, and it compounds daily at a rate above 11 per cent. A refinance at a mortgage rate, even a specialist lender's rate, is cheaper. The ATO also reports business tax debts above $100,000 that are more than 90 days overdue to credit reporting bureaus if the taxpayer is not engaging, and issues director penalty notices that make directors personally liable for unpaid PAYG withholding, super and GST. Once a default is reported or a DPN issued, the refinance gets harder, not easier. If the debt is a business debt, the tax debt help resources at gettaxdebthelp.com.au cover the ATO side in detail.

The refinance pays out the existing mortgage and releases the additional funds to clear the ATO. Lenders usually want to pay the ATO directly at settlement, or see evidence within days that the debt has been cleared. Total lending is capped by LVR: on a $1,000,000 home with a $600,000 mortgage and a $120,000 tax debt, the new loan of $720,000 is 72 per cent LVR and well within policy. If the tax debt pushes the LVR above 80 per cent, options narrow and LMI or a second mortgage may be needed.

If the business that generated the debt is still losing money, refinancing the home to pay one year's tax simply moves the problem onto the house. Lenders will ask what has changed. For company debts with no assets to refinance against, a payment plan with the ATO or a formal restructure is the alternative, and that is a conversation for an accountant or restructuring adviser rather than a lender.