A second mortgage for tax debt, before the ATO escalates

What is a second mortgage for tax debt?

When the ATO is knocking, time and pressure become part of the problem. A second mortgage for tax debt is a loan, secured by a registered second mortgage over property you own, used to clear what you owe the tax office. That might be unpaid BAS and GST, PAYG withholding, income tax, superannuation guarantee or the penalties and interest that have piled up.

It ranks behind your existing mortgage, so the lender looks carefully at the equity in the property and at your plan for repaying or refinancing the new loan. The reward is that a debt with deadlines and enforcement options is replaced by a loan you have agreed to and can plan around. Our wider second mortgage page explains the product in general.

Why do banks hesitate with tax debt?

Banks see an ATO debt as a warning sign. It suggests a cash flow problem, and the ATO has strong recovery powers. Many mainstream lenders will pause or decline an application where tax is overdue, even if the borrower owns a valuable property. Private and specialist lenders look at the situation differently: they look at the equity, the purpose and the exit.

Using borrowed funds to pay a tax debt is not unusual. A well-structured loan can be cheaper and calmer than a long, escalating dispute, particularly when the alternative is garnishee notices, penalties or the loss of a business. But it only works if the exit plan is real. Our ATO debt refinance page explains the longer-term route, and the guide on ATO debt and your property explains what the tax office can do.

ATO payment plan or second mortgage: which fits?

Question	ATO payment plan	Second mortgage
Needs property security	Not always, though the ATO may ask for security for larger debts	Yes
Speed to clear the debt	Spread over months, as agreed	Debt can be paid in full once the loan settles
Ongoing interest to the ATO	General interest charge continues on the unpaid balance	Replaced by the new lender’s cost
Flexibility	The ATO sets conditions and can change them if you miss payments	Terms are set in the loan contract
Effect on credit	Depends on the debt and reporting rules	The new loan appears as a debt against the property
Best for	Manageable debts and steady cash flow	Larger or urgent debts, or where a plan is refused

Neither is right for everyone. A payment plan can be a good first step. A second mortgage can be the better move when the plan would strain the business, or when clearing the debt unlocks other lending.

What has changed about ATO interest?

For income years starting on or after 1 July 2025, general interest charge and shortfall interest charge on ATO debts are no longer tax deductible. That removes a small cushion that used to apply to businesses, so carrying a debt to the ATO is more costly than it was. Interest on a separate loan used to pay the debt may be treated differently, depending on how the money is used. Speak with your accountant about your own position.

The ATO has also been reporting some larger overdue business tax debts to credit reporting bureaus. Rules can change, so check the ATO website for the current position and talk to your accountant about whether your debt is likely to fall within it.

What do lenders look at?

The debt. An ATO account statement shows exactly what is owed, what type of debt it is and whether the ATO has taken any action. See our guide on how to get an ATO account statement.

The property and the equity. Lenders lend against value, so they want to know what the property is worth, what is owed on it and how much headroom remains.

The exit. How will the loan be repaid? Typical answers include refinancing to a bank once the tax position is clean and lodgements are up to date, selling an asset or repaying from contracts and receivables.

Lodgements. Missing BAS or tax returns raise questions. Many lenders prefer returns to be lodged and the ATO figures to be current.

The borrower. Business history, directors, guarantors and the reason the debt arose all matter. A one-off event is viewed differently from a pattern.

Who is this suited to?

• Small business owners with unpaid BAS, GST or PAYG
• Contractors and sole traders with an assessed income tax bill
• Company directors worried about director penalties
• Employers behind on super guarantee payments
• Individuals with a large capital gains tax liability
• Owners who need a clean ATO position to refinance or sell the business

If the debt is tied to a home loan application, see home loans when you owe the ATO. For GST specifically, our BAS and GST debt loans page covers the specifics.

How Ownright arranges second mortgages for tax debt

Trevor Scott has more than four decades of finance experience, and he has seen enough tax-office pressure to know that the first conversation should be calm and practical. We ask what is owed, whether the ATO has taken action, what property you own and what happens after the debt is cleared. Then we compare a payment plan, a second mortgage and a refinance.

We work with lenders who understand tax debt, including some that most brokers never approach. We help assemble the ATO statement, valuation and supporting documents, and we keep communication clear with the lender so the process does not stall. Speed depends on the lender, the property and how quickly the paperwork arrives. If the ATO has set a deadline, tell us right away. We also help you plan the next step, such as moving to a lower-cost first mortgage once your tax position is settled. See also our debt consolidation loans page.

An illustration

Illustrative scenario only. A small trades business has unpaid BAS after a slow quarter and a client who paid late. The ATO has issued reminders and the owners fear enforcement. They own a home with good equity. A broker could consider a short-term second mortgage that clears the ATO balance, supported by lodged BAS and a plan to refinance to a standard lender within a defined period once the tax record is clean.

What mistakes should I avoid?

• Ignoring ATO letters and hoping the debt goes away
• Borrowing without checking whether a payment plan would be cheaper
• Paying the ATO while leaving wages, super or key suppliers unpaid
• Failing to lodge outstanding BAS or returns
• Not taking independent advice when directors are personally exposed
• Having no clear exit once the tax debt is cleared

What documents should I have ready?

• An ATO account statement and recent notices
• Lodged BAS and tax returns, or a plan to lodge
• Property title, rates notice and first mortgage statement
• Photo ID for borrowers and guarantors
• Business bank statements for the past few months
• A summary of what led to the debt and how it will not recur

Our guides on what documents you need and on how to get loan ready help you prepare.

Ready to deal with the tax debt?

Sounds like you’re looking for a second mortgage to clear an ATO debt. We’re the lending experts in tax debt finance secured by property, so click the button below and see if you qualify before the next deadline arrives.