BAS & ATO Debt: Smarter Ways to Manage Tax Pressure
BAS and ATO debt can place significant pressure on an otherwise viable business. A large tax payment may fall due at the same time as wages, suppliers, equipment costs and other operating expenses, leaving a business with a short-term cash flow problem even when trading remains strong.
The important thing is to address tax pressure early rather than allowing the problem to grow while continuing to meet everyday business expenses.
If you are specifically comparing an ATO arrangement with external finance, read our ATO Payment Plans vs Business Finance guide.
Discuss Your Business Finance Options →Why BAS and ATO Debt Can Build Up
Tax debt does not always arise because a business is performing poorly.
For some businesses, the issue is the timing of cash moving through the business. Revenue may have been earned, but customer payments have not arrived before BAS, GST, PAYG or other tax obligations fall due.
Late Customer Payments
Outstanding invoices can leave revenue tied up in receivables while tax and operating costs continue to fall due.
Rapid Growth
Growing businesses may spend heavily on staff, materials, inventory and equipment before receiving the cash generated by that growth.
Seasonal Cash Flow
Businesses with uneven revenue throughout the year may find tax obligations coincide with a quieter trading period.
Unexpected Costs
Repairs, project overruns, bad debts or other unexpected costs can consume cash that had been allocated to upcoming tax obligations.
Existing Debt
High repayments across existing finance facilities can reduce the cash available when BAS and tax obligations fall due.
Poor Cash Flow Timing
A profitable business can still experience a temporary mismatch between cash coming in and payments going out.
Why BAS and ATO Debt Shouldn’t Be Ignored
When a business cannot meet a tax obligation, avoiding the problem can reduce the options available later.
A better approach is usually to understand the size of the liability, why it has arisen and what the business can realistically afford to repay.
What Options Can Businesses Consider for ATO Debt?
There is no single solution that suits every business. Depending on the circumstances, several strategies may be worth considering.
1. Discuss a Payment Arrangement With the ATO
Eligible businesses may be able to arrange repayment of tax debt over time rather than paying the entire balance immediately.
Whether this is appropriate depends on the amount owed, the repayment terms available and whether the business can comfortably meet both the agreed repayments and its future tax obligations.
2. Use Business Finance to Repay or Restructure Tax Debt
Some commercial lenders will consider providing business finance where the funding is being used to repay or restructure an outstanding ATO liability.
This may allow the tax debt to be replaced by a structured commercial finance facility, subject to lender criteria and the business’s ability to service the new loan.
3. Use Working Capital Finance
Where tax pressure forms part of a broader short-term cash flow issue, a working capital facility may provide additional liquidity to support the business while revenue catches up with outgoing expenses.
4. Consider a Business Overdraft
For businesses that experience recurring fluctuations in cash flow, a business overdraft may provide access to a revolving credit limit that can be drawn when required, subject to lender terms.
5. Review Existing Business Debt
If existing finance repayments are already restricting cash flow, adding another facility may not be the most appropriate solution.
In some situations, debt restructuring may help create a more manageable overall finance position.
ATO Payment Plan vs Business Finance
Neither an ATO payment plan nor business finance is automatically the better solution.
ATO Payment Arrangement
May suit a business where the tax debt and proposed repayments can be comfortably managed from ongoing cash flow.
The business still needs to remain on top of future tax obligations while repaying the existing debt.
Business Finance
May be worth considering where a business wants to clear or reduce the ATO balance and replace it with a separate commercial finance structure.
Approval, pricing and repayment structure will depend on the lender and financial position of the business.
For a detailed comparison, see ATO Payment Plans vs Business Finance: Which Is Better?
Is It a Good Idea to Borrow Money to Pay ATO Debt?
Sometimes — but not always.
Borrowing may make commercial sense where the underlying business remains viable, the tax problem has a clear cause and the new finance creates a more manageable repayment structure.
Temporary or Manageable Pressure
- The underlying business is profitable
- The tax debt arose from a temporary cash flow event
- There is a realistic capacity to service new finance
- The new structure improves overall cash flow management
- Future tax obligations can still be met
Ongoing Financial Pressure
- Tax debt continues to increase every quarter
- The business is consistently loss-making
- There is no clear repayment strategy
- Existing debts are already difficult to service
- The new loan merely postpones an unresolved problem
Our Borrowing to Pay Tax Debt guide examines this question in more detail.
Finance Options That May Be Used to Manage Tax Pressure
The appropriate finance structure depends on the amount required, strength of the business, available security and whether the funding need is temporary or longer term.
| Finance Option | How It May Help | May Suit |
|---|---|---|
| Business Loan | Provides a defined amount of funding that may be used for eligible business purposes including tax liabilities. | Businesses seeking a structured repayment facility. |
| Business Overdraft | Provides revolving access to working capital, subject to the approved limit. | Businesses managing recurring short-term cash flow fluctuations. |
| Invoice / Debtor Finance | May release working capital tied up in eligible unpaid business invoices. | Businesses where late customer payments are contributing to tax pressure. |
| Equipment Refinance | May allow a business with equity in eligible machinery, vehicles or equipment to release capital. | Asset-rich businesses seeking to improve working capital. |
| Secured Business Finance | Uses suitable security to support a commercial funding facility. | Businesses seeking larger or more complex funding structures. |
| Debt Restructuring | Reviews existing finance commitments and how they are structured. | Businesses where current repayments are contributing to cash flow pressure. |
What If Late-Paying Customers Caused the Tax Problem?
For businesses that invoice other businesses, tax pressure can sometimes be traced directly back to slow customer payments.
The business may have completed the work and generated the revenue but still be waiting for cash while BAS, wages and suppliers fall due.
In this situation, invoice or debtor finance may potentially allow eligible businesses to access part of the value tied up in outstanding invoices earlier.
You can also read our Late Payments? Finance to Cover the Cash Flow Gap guide.
Can Equipment Be Refinanced to Improve Cash Flow?
Potentially.
A business that owns vehicles, machinery or equipment with available equity may be able to refinance eligible assets and release capital back into the business.
Depending on the transaction and lender, the released funds may help support working capital or address eligible business obligations.
Can You Get Business Finance If You Already Have ATO Debt?
Potentially. Some commercial lenders will consider businesses with existing tax debt, although policies vary considerably.
An application may be assessed on factors including:
The Business
- Trading history
- Turnover and cash flow
- Recent financial performance
- Existing liabilities
- Ability to meet proposed repayments
The Tax Debt
- Amount outstanding
- How the debt arose
- Current ATO position
- Whether a payment arrangement exists
- Strategy for preventing future tax arrears
Transparency is important. A lender is generally better able to assess the transaction when the tax debt and circumstances surrounding it are explained clearly.
What Information May Be Needed When Applying for Finance?
Requirements vary between lenders and transactions, but information may include:
- Business identification and ABN details
- Recent business bank statements
- ATO account statements
- Details of outstanding tax liabilities
- Financial statements where required
- BAS information
- Details of existing business debts
- Explanation of how the tax debt arose
- Funding amount required
- Proposed repayment strategy
Don’t Forget About the Next BAS or Tax Payment
Clearing existing tax debt only solves part of the problem.
The business also needs enough ongoing cash flow to meet future tax obligations as they arise while servicing any new finance.
This is why tax-debt finance should usually be considered as part of the broader cash flow position of the business rather than as an isolated transaction.
Could the Real Problem Be Business Cash Flow?
If BAS and tax liabilities repeatedly create financial stress, the underlying issue may be broader than the tax bill itself.
It may be useful to review:
- Customer payment terms
- Gross margins
- Stock and inventory levels
- Existing loan repayments
- Seasonal revenue patterns
- Cash reserves
- Tax provisioning
- Working capital requirements
Our Cash Flow Pressure Isn’t Failure guide explores some of these broader cash flow strategies.
Questions to Ask Before Financing ATO Debt
Before replacing tax debt with another finance facility, consider the whole financial position of the business.
- Why did the tax debt arise?
- Is the problem temporary or ongoing?
- Can the business meet future tax obligations?
- How much needs to be repaid?
- What repayment can the business comfortably afford?
- What is the total cost of the proposed finance?
- Would an ATO payment arrangement be manageable?
- Are existing debts contributing to the problem?
BAS & ATO Debt Is a Cash Flow Problem That Needs a Plan
Tax pressure should not automatically be treated as evidence that a business has failed.
For an otherwise viable business, BAS or ATO debt may have developed because of late payments, rapid growth, seasonal trading or an unexpected cash flow event.
The right strategy may involve an ATO payment arrangement, business finance, working capital, invoice finance, asset refinance or restructuring existing debt.
The important part is ensuring the solution addresses both the existing tax debt and the reason it arose.
Speak With Your Accountant or Tax Adviser
Finance is only one part of managing tax debt.
Businesses should consider discussing their tax position with their accountant, tax adviser or other appropriately qualified professional, particularly where liabilities are significant or the business is having difficulty keeping up with current obligations.
Woodward Finance can assist with assessing commercial finance options, while your accountant or tax adviser can help you understand the tax consequences and obligations relevant to your circumstances.
How Woodward Finance Can Help
Woodward Finance works with Australian businesses seeking commercial funding for cash flow, tax obligations, debt restructuring and other business purposes.
With access to a broad lender panel, we can assess the business, amount required and overall financial position and compare finance structures that may be suitable.
Where business finance is not the right solution, understanding that early is also important. The objective should be a sustainable funding structure rather than simply moving debt from one place to another.
Frequently Asked Questions About BAS & ATO Debt
Common questions Australian business owners ask when BAS or tax debt begins placing pressure on cash flow.
Can a business get finance to pay ATO debt?
Potentially. Some commercial lenders will consider applications where business finance is being used to repay or restructure tax debt. Approval depends on the business’s financial position, cash flow, amount required and lender criteria.
Can I get finance if I already have an ATO payment plan?
Potentially. Some lenders may consider businesses that already have an ATO payment arrangement. The lender will generally assess the outstanding debt, current repayments and broader financial position of the business.
Is an ATO payment plan better than a business loan?
Neither option is automatically better. An ATO payment arrangement may suit a business that can comfortably meet the agreed repayments, while business finance may be worth considering where a different repayment structure would better suit the business. The total cost and cash flow impact of each option should be considered.
Can BAS debt be included in business finance?
Potentially. Some lenders may consider finance used for eligible business tax liabilities, including outstanding BAS amounts, subject to lender criteria and the financial position of the business.
Can I refinance equipment to help pay tax debt?
In some circumstances, a business may be able to refinance eligible vehicles, machinery or equipment with available equity and release capital back into the business. The available amount and permitted use of funds depend on the asset, lender and transaction.
Will having ATO debt stop me getting business finance?
Not necessarily. Lender policies vary. Some lenders will consider businesses with disclosed tax debt where the overall application, cash flow and repayment strategy meet their criteria.
What if my business keeps falling behind on BAS?
Repeated BAS arrears can indicate that the broader cash flow position needs attention. Before adding more finance, it may be useful to review profitability, customer payment timing, existing debt, tax provisioning and working capital requirements with the appropriate advisers.
Should I speak to my accountant about ATO debt?
Yes. An accountant or tax adviser can help you understand your tax position and obligations, while a commercial finance broker can help assess potential business funding options. Significant or ongoing tax debt should be addressed with appropriate professional advice.
