Switchboard Finance, a Melbourne based non-bank finance broker for self-employed Australians, is advising business owners carrying ATO debt to reassess how that debt is funded, following a change to interest deductibility rules and a further rise in the ATO’s own interest rate this quarter.

For business owners who hold equity in property, the broker says more of these conversations are now landing on second mortgage finance for business purposes rather than a standard ATO payment plan.

The broker says the shift follows two changes that have moved in the same direction over the past year, one legislative and one purely mechanical.

“A tax debt used to cost less the longer certain clients carried it, because the interest was deductible,” the company states. “That’s no longer the case. Business owners are now weighing up a debt that gets more expensive every quarter against finance options that don’t carry the same tax treatment problem.”

The cost of carrying tax debt has changed

Under the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, general interest charge (GIC) and shortfall interest charge (SIC) incurred on or after 1 July 2025 are no longer deductible for income tax purposes, regardless of which income year the underlying debt relates to.

Before this change, GIC and SIC could generally be claimed as a tax deduction, which softened the effective cost of carrying a tax debt.

The ATO reviews both rates quarterly.

For the July to September 2026 quarter, the GIC annual rate sits at 11.43 per cent and the SIC annual rate at 7.43 per cent, both up from the previous quarter. GIC compounds daily, so a debt sitting on a payment plan continues accruing interest at the full rate for as long as any balance remains outstanding.

Why some business owners are looking at property-secured finance instead

“A payment plan doesn’t pause the interest, and it never has,” the company states. “What’s changed is that the interest is no longer softened by a deduction. Business owners are effectively paying the full rate now, with no tax offset behind it.”

Switchboard Finance says the calculation for many business owners with property has shifted as a result.

Interest on borrowing used for a genuine business purpose, such as clearing a tax debt tied to trading activity, is generally assessed under the ordinary deduction rules for business finance, which is a different tax treatment to ATO interest and depends on the borrower’s individual circumstances.

Second mortgage finance for business purposes lets a business owner access equity sitting in a residential or commercial property they already own, without refinancing or renegotiating their existing home loan.

The first mortgage stays exactly where it is. The second mortgage is registered separately, in second position, specifically for a business purpose such as clearing an ATO debt, bridging a settlement, or funding working capital.

“It’s not the right fit for everyone, and it’s not designed to replace a normal home loan,” the company states. “But if a business owner already has equity in a property and a real exit strategy, it’s often faster and structurally cleaner than carrying a growing tax debt on a payment plan.”

Director penalty notices remain a separate risk

Alongside the interest changes, the ATO continues to issue director penalty notices (DPNs) where a company has unpaid PAYG withholding, GST or superannuation guarantee amounts.

A DPN can make a director personally liable for the company’s debt, and the notice carries a strict deadline.

Once a lockdown DPN has been issued, options to remit the penalty narrow substantially, which is why the broker recommends business owners act on a notice as soon as it arrives rather than waiting on other finance to come through.

What lenders assess before approving this type of finance

Switchboard Finance says second mortgage lenders assess the combined value of the first and second loans, which is generally capped at 70 to 75 per cent of a property’s forced-sale value.

They also consider the borrower’s exit strategy, the property offered as security, and whether the applicant is a company or ABN holder seeking funds for a business purpose.

Where the scenario fits, a letter of offer is typically issued within 24 to 48 hours, with settlement following within days once a valuation and legal checks are complete.

What to have ready before speaking to a broker

The company recommends business owners have the following on hand before a first conversation:

The amount owing to the ATO and any deadline attached to it, including whether a DPN has been issued.

Recent equity information for the property being considered as security, including an approximate value and the balance owing on the first mortgage.

Confirmation of the borrowing entity, whether that is a company, trust or ABN holder, and whether the property is held in a personal or business name.

A general sense of the exit strategy, whether that’s an expected sale, a planned refinance, or ongoing trading cash flow.

“The business owners who move fastest through this process are the ones who’ve already thought about how they’ll repay it,” the company states. “That’s the first question every lender asks, and it’s worth having an answer before the first call.”

About Switchboard Finance

Switchboard Finance is a non-bank finance broker for self-employed Australians and business owners, working with a panel of more than 50 specialist and private lenders across vehicle and equipment finance, business loans, and property-secured lending

“We built this because business owners kept getting knocked back by banks for reasons that had nothing to do with their actual ability to repay,” the company states.

“A lot of the time the equity to solve the problem is already sitting in a property they own. Our job is matching that equity to the right lender, quickly.” it said.

The company operates a free, no credit check eligibility check that takes around two minutes, with brokers typically responding within one business day.

This release is general information only and does not constitute financial, tax or legal advice. It does not take into account any individual’s objectives, financial situation or needs.

Business owners should seek advice from a qualified accountant, tax agent or financial adviser before making decisions about ATO debt or business finance.