Key takeaways
- •A default makes the whole overdue ATO balance payable at once.
- •A BAS or income tax amount paid late can default a plan even when every instalment was paid.
- •A default ends the protection from credit bureau reporting and makes a garnishee notice more likely.
- •The ATO may re-negotiate a plan after a default, but GIC keeps accruing on the new one.
- •A private loan from $250,000 to $10,000,000, backed by property, gives the business the funds to pay the full balance in one payment.
- •We decide in hours and can settle within 24 hours.
When an ATO payment plan defaults, the ATO stops waiting for the next instalment. It treats the whole overdue balance as payable straight away, and it may move to firmer action such as a garnishee notice or reporting the debt to credit bureaus.
If the business or a director owns property, a short-term private loan from $250,000 gives the business the funds to pay that whole balance in one payment, and the business then repays the loan through a defined exit strategy, such as a refinance or a property sale.
What a payment plan default means
Under the ATO's rules for managing a payment plan, a plan defaults when it is no longer active because its conditions have not been met. The ATO gives three examples: not acting on an arrears letter, missing an agreed instalment by its due date, and not paying an additional tax obligation on time. The third applies even where every instalment was paid, so a BAS or income tax amount that is paid late can default the plan on its own.
The consequence is set out in one sentence on the same page: "If your payment plan defaults, the whole overdue balance becomes immediately payable and we may take firmer action." The business is no longer working through a schedule. It owes the full amount now.
Arrears comes before default. An arrears letter gives you the chance to bring the plan back on track before it defaults, and it states the minimum amount you need to pay now. If you have asked the ATO to send your correspondence to your tax agent, that letter goes to them, so ask your agent what has arrived.
What the ATO can do after a default
While the business kept to the plan, the ATO would not report the debt to credit bureaus, because it does not report a business tax debt that is on a payment plan the business is complying with. A default ends that protection. Under the ATO's rules on disclosing business tax debts, a business can then be reported where "at least $100,000 is overdue by more than 90 days". The ATO first sends a notice of intent to disclose, which gives the business 28 days from receiving it to act. A reported debt is removed once the business pays it in full or engages effectively with the ATO to manage it.
A garnishee notice also becomes more likely. Defaulting on payment plans is one of the factors the ATO weighs before it issues a garnishee notice. For a business, the notice can go to its bank, its trade debtors, its merchant card providers, or the solicitor, real estate agent or buyer involved in selling a property the business owns. The ATO sends a warning letter before it issues one, and paying the debt in full at that point avoids the collection action.
For a company, the directors are exposed as well. Under the director penalty regime, a director can become personally liable for the company's unpaid PAYG withholding, GST and super guarantee charge. A director penalty notice gives 21 days to act, counted from the day the ATO posts it. Where the PAYG withholding or GST was reported more than 3 months after its due date or not reported at all, or the super guarantee charge was reported after its due date or not reported, the only way to have the penalty remitted is to pay the company's debt in full.
The last step is legal action. A statutory demand requires the company to pay the entire debt, or enter into a payment plan with the ATO, within 21 days. Paying the entire debt within that time meets the demand. If the demand is not met, the ATO may apply to the Federal Court to wind the company up.
One default does not set off all of these at once. The ATO is more likely to start firmer action when a business repeatedly defaults on agreed payment plans, and a default is one of several factors in a garnishee decision. If a director penalty notice or a statutory demand has already been issued, though, its 21 days are already running, and our page on a short term loan to pay an ATO debt before a garnishee, DPN or wind-up deadline covers that timetable.
Paying the defaulted balance in full with a private loan
After a default, the ATO requires the whole overdue balance, not the next instalment. With a private loan, the business is the borrower and the loan funds are paid to the business, which then pays the ATO that balance in one payment. If the default was caused by a new BAS or tax amount, the same loan can cover that amount too, so the ATO account is clear and there is no plan left to default.
| Loan size | $250,000 to $10,000,000. Within that range, one loan can cover the plan balance, the new amount and other overdue ATO accounts together |
| Term | 1 to 24 months, typically 3 to 6 months |
| Security | A first or second mortgage over residential, commercial or industrial property owned by the business or a director, including property already held in a company or a trust |
| Maximum LVR | 70%. For a second mortgage, the first and second mortgages combined. A second property can be added as additional security within the same 70% |
| Repayment | The business repays the loan to us through a defined exit strategy, for example a refinance to your bank or the sale of a property |
Paying in full also stops the general interest charge on that balance, and it takes the business below the ATO's $100,000 overdue test for credit bureau reporting. That matters if the business plans to repay the loan through a bank refinance. Our tax debt loans page sets out how the loan works in more detail.
A new payment plan, and how a loan compares
A default does not rule out a new plan. On the same ATO page about managing a payment plan, the ATO asks a business whose plan has defaulted to contact it to discuss the options, and those options may include re-negotiating the plan.
That conversation happens by phone: the ATO's guide to setting up a payment plan requires you to call if you owe $200,000 or more or need to re-negotiate an existing plan. On that call the ATO asks why you cannot pay by the due date, and for your bank details, including current account balances and any lines of credit, along with your income, expenses and assets. It asks extra questions if you have defaulted on or cancelled 2 or more payment plans in the past 12 months.
A new plan then works the same way as the old one. Under the ATO's payment plan terms, the debt on the plan keeps accruing GIC, compounding daily, and every future tax debt must also be paid in full and on time.
A private loan works differently. The business pays the ATO once, so there are no further ATO instalments and no plan conditions to keep. In one of our loans, a business owner who faced an ATO wind-up application after a payment plan proposal was declined received a $450,000 second mortgage released within 24 hours.
If a credit card instalment failed after 30 November 2026
The ATO stops accepting credit cards after 30 November 2026. From then, an instalment charged to a credit card will be unsuccessful, and a plan can move into arrears or default as a result.
If your plan is only in arrears, a loan gives the business the funds to pay the balance in full before the plan defaults. Once the balance is paid off early, cancel the plan as well, because cancelling is what stops the remaining direct debit instalments. If the plan has already defaulted, the business uses the loan to pay the full overdue balance in the way described above. Our article on the ATO's decision to stop accepting credit cards covers the full change.
The interest rates side by side
The ATO's general interest charge (GIC) is calculated daily, compounding on the amount overdue. For October to December 2026 the GIC rate is 11.51% a year, a daily rate of 0.03153425%. On a $400,000 balance that is about $126 a day, or about $11,500 over 90 days if the rate stayed the same. The ATO reviews the rate quarterly, and GIC incurred on or after 1 July 2025 cannot be claimed as a tax deduction.
Our tax debt loans start from 9.7% p.a. A second mortgage behind an existing loan starts from 11.95% p.a. Ask for the full offer in writing, with every cost, before you compare.
The ATO's small business newsroom suggests talking to a registered tax professional, and adds: "Their advice may include a business loan, as some interest on loans connected with running a business may be eligible for a tax deduction." Whether that applies to your business, and any question about GIC or director penalty remission, is for your accountant or tax agent. We are a lender, and we do not give tax advice or insolvency advice.
FAQ
Do I owe the whole ATO balance straight away after a default?
Yes. Once a plan defaults, the ATO treats the whole overdue balance as immediately payable. A private loan can give the business the funds to pay it in one payment.
How do I know if my plan is in arrears or in default?
You can check the plan's status in Online services for business, under Accounts and payments. A plan in arrears may still be active, and the arrears letter sets out the minimum amount to pay now. A plan in default is no longer active, and the whole overdue balance is payable.
Can one loan cover the defaulted plan and the BAS that caused the default?
Yes. One loan of $250,000 to $10,000,000 can give the business the funds to pay the plan balance and the new BAS or tax amount together. It is backed by a first or second mortgage over residential, commercial or industrial property, and repaid over 1 to 24 months.
Can I get another payment plan from the ATO?
The ATO may agree to re-negotiate a plan after a default. It is done by phone, and GIC keeps accruing on the new plan. With a private loan, the business pays the balance in full instead, so there is no new plan to keep to.
My plan defaulted because my credit card instalment failed. What now?
The cause of the default does not change what is owed: the whole overdue balance is payable. A private loan gives the business the funds to pay that balance in full, and we can settle within 24 hours once terms are agreed.
How Secured Lending Can Help
Our loan gives the business the funds to pay the whole defaulted balance in one payment, on the terms in the table above. We decide in hours, issue a letter of offer as soon as terms are agreed, and can settle within 24 hours. Our in-house team values the property, so there is no wait for an external valuer, and we lend our own funds. A live ATO tax debt listing on the business's credit file is not, on its own, a reason we decline.
We provide secured loans backed by real property. If you would like us to look at your situation, it helps to have these to hand:
- •The ATO statement of account, and the default, arrears, notice of intent to disclose, director penalty or garnishee letter you have received, with its date.
- •The property that could back the loan, its estimated value and any existing loan on it.
- •The exit strategy: how the business will repay the loan, and roughly when.
You are welcome to call us on 1300 795 175 to talk it through, or send the details through and we will come back to you. In most cases, we can tell you within hours whether we can help.
