Home loans when you owe the ATO

Can you get a home loan when you owe the ATO?

A tax debt feels heavy, particularly when it follows a hard year in business. It can also look like a wall between you and any new finance. In practice, it is a hurdle rather than a wall. Lenders see ATO debts regularly, and the question they ask is less “do you owe money?” and more “how is the debt being handled, and can you afford a new loan on top of it?”

Ownright Custom Finance works with homeowners and buyers in this position across Australia. Trevor Scott’s long career means we have seen the full range, from a one-off BAS shortfall to a multi-year backlog. Our approach is straightforward: understand the debt, show the lender a plan and find the structure that stops it growing.

How does the ATO treat tax debts?

The ATO’s own guidance sets out the main points that matter for lending.

• Payment plans exist. If you owe $200,000 or less, you may be able to set one up online or through the self-help phone line. Larger debts, or cases involving insolvency, disputes or more than two years to repay, need a phone call. A tax or BAS agent can also set one up for you.
• Interest can build. The ATO says it helps you reduce interest by suggesting the shortest repayment timeframe that suits your circumstances.
• Business tax debts can be reported. The ATO may disclose a business tax debt to credit reporting bureaus if the business has an ABN and at least $100,000 is overdue by more than 90 days. It sends a written notice first and gives 28 days to act.
• Reporting can be avoided. It does not proceed if you are complying with a payment plan, have applied for release, or have an active objection, review or Tax Ombudsman complaint.

These rules explain why timing matters. Engaging with the ATO early, and showing a plan, usually keeps more options open than leaving the debt to age.

How do lenders view an ATO debt?

Factor	A positive sign	A negative sign
Engagement	Active payment plan, being met	Ignored notices, no contact
Lodgements	Returns and BAS up to date	Overdue returns, missing BAS
Size relative to income and equity	Manageable against both	Large against income, little equity
Cause	One-off event, now resolved	Ongoing trading losses
Trend	Debt falling	Debt growing

Lenders also add the payment plan repayments to your commitments when calculating what you can afford.

What are the options?

1. Keep the payment plan and refinance around it. A lender may accept the plan as a commitment and still assess the home loan.
2. Cash-out refinance. Clear the debt by releasing equity, replacing the ATO debt with a mortgage-secured one. See cash-out refinance.
3. Second mortgage. Keep your existing first mortgage and add a second loan to pay the ATO. Our page on second mortgages explains how these work.
4. Short-term private finance. A quick loan to settle a debt that is escalating, with a plan to refinance to a longer-term loan afterwards. See refinancing ATO debt.
5. Business-side finance. If the debt belongs to a company, a business loan may be more suitable. See business loans to clear ATO debt.

Each path has costs, and swapping an ATO debt for a mortgage-secured one has consequences for your home. We set them out clearly before you decide.

Is a refinance the right way to clear it?

Not always, and we will tell you when it is not. Tell us about the debt and we will work through the options with your numbers.

Who does this page suit?

• Self-employed owners with a BAS or income tax debt after a tough period.
• Company directors who have personally guaranteed or are exposed to tax liabilities.
• Homeowners who want to refinance but have an ATO payment plan in place.
• Buyers who owe the ATO and want to purchase a property.
• Owners who have received a notice and need to act before reporting or enforcement.

You might also like our guide on ATO debt and your property, which covers the options in more depth.

What do lenders look at?

• The debt itself. Amount, type and age. Income tax, GST and PAYG withholding debts are viewed differently.
• ATO arrangements. A payment plan, whether it is being met and its remaining term.
• Compliance. Whether lodgements are current. Lenders get nervous about unlodged returns.
• Income and cash flow. Can the business and household carry the new loan and the debt, if any remains?
• Equity. The more equity, the more options, including private ones.
• Cause and plan. Why it happened and what has changed.

How does Ownright approach ATO debt?

We begin by getting the facts: how much, what type, what stage and what the ATO has said so far. If the debt is under a payment plan, we find out the schedule. If a notice has arrived, we check the dates.

Then we look for the structure that does the least harm. Sometimes that is a refinance that clears the debt and simplifies repayments. Sometimes it is a short-term loan that stops an escalation while you restructure the business. We also look at less obvious solutions, including lenders that regularly deal with tax debt and structures most brokers never consider. If Ownright can’t find the solution, no one can.

The conversation is private and without judgement. We arrange loans in every state and territory from our Knoxfield, Victoria office, and we work alongside your accountant so the finance and tax sides line up.

An illustrative example

This scenario is illustrative only and does not describe a real client.

A cafe owner fell behind on BAS during a difficult year and now owes the ATO a sum that is growing. She owns her home with a reasonable amount of equity and has a payment plan in place, which she is meeting. Her bank will not increase her loan because of the debt.

Ownright looks at her returns, her payment plan and the cafe’s current trading. We approach a lender that accepts self-employed borrowers with a managed tax debt, arranging a cash-out refinance that clears the ATO in full and consolidates the repayments. The lender decides the application on its merits, but she is no longer paying interest on a growing debt.

Mistakes to avoid

• Ignoring ATO letters until a notice of intent arrives.
• Missing a payment plan instalment, which can unwind the arrangement.
• Leaving returns and BAS unlodged while trying to arrange finance.
• Taking out an expensive short-term loan without an exit plan.
• Forgetting that new borrowing secured on your home puts the home at stake.

Documents to have ready

• ATO statement of account and any notices.
• Payment plan details, if you have one.
• Last two years of returns, notices of assessment and recent BAS.
• Recent bank statements, personal and business.
• Latest mortgage statement and property details.
• A short written timeline of how the debt arose.

Let’s deal with it together

Apply online or call Ownright Custom Finance on 03 7043 7233. Start with whatever paperwork you have. We would rather see an incomplete file early than a full one too late.