Loan to pay a tax bill: when a good year leaves a big company tax bill

Why do good years cause tax problems?

It sounds backwards, but some of the most stressful tax bills follow the best years. Profit is an accounting figure; cash is what’s in the bank. A business that grew fast often spent its profit before it was taxed — on more stock, a second vehicle, extra staff or a bigger fit-out. When the return is lodged, the assessment arrives for the full profit, and the cash to pay it has already gone to work.

Add PAYG instalments for the next year, which often rise after a strong result, and the business can be hit twice in quick succession.

What can you do before 30 June?

The cheapest tax bill to handle is the one you see coming. In May or June, ask your accountant for:

1. An estimate of the year’s taxable profit and the tax on it.
2. The due date for the assessment based on how your returns are lodged.
3. The likely effect on PAYG instalments for the year ahead.
4. Legitimate timing options your accountant considers appropriate for your business.

With that estimate, you can start setting money aside, plan a payment arrangement, or line up funding — all before the bill becomes overdue and starts attracting GIC.

What are the options once the assessment arrives?

Option	Good for	Watch out for
Pay from cash reserves	Businesses that set money aside	Draining working capital before a quiet season
ATO payment plan	Moderate bills you can clear within the plan	GIC compounds daily and isn’t deductible from 1 July 2025; separate plans for income tax and activity statements
Business loan	Larger bills, or when you want to keep the ATO account clean	Total cost of the loan; repayments must fit cash flow
Combination	Paying part now, financing or planning the rest	Keep new BAS and instalments current

Income tax is not one of the taxes covered by the director penalty regime, so a company’s income tax debt doesn’t create the same personal exposure as unpaid GST, PAYG withholding or super. That makes an ATO plan a reasonable option for many businesses. The case for borrowing grows when the bill is large, the plan would need to run long, or the business wants to protect its credit standing and supplier relationships.

How does a loan to pay the tax bill work?

The process is the same as any loan to pay ATO debt: confirm the assessment amount and due date, enquire, provide recent bank statements and financials, and settle. Where arranged, the loan can be paid to the ATO income tax account directly.

Because the bill usually follows a good year, the financials often look strong — which helps. Unsecured funding (typically $5,000 to $500,000) suits many of these situations. For bigger bills, property-secured funding from $20,000 to $5,000,000 gives more room.

Is the interest on a loan to pay tax deductible?

GIC incurred from 1 July 2025 isn’t deductible. Interest on a business loan may be deductible where the borrowing is connected to earning the business’s assessable income, but the answer depends on who borrows and how — for example, the ATO’s view is that a partner borrowing personally to pay tax on partnership profits generally can’t deduct the interest. Ask your accountant before you sign, not afterwards.

An illustrative example

A joinery business has its best year after landing a run of commercial fit-outs. It used its cash to buy a CNC machine and take on two apprentices. The company tax assessment arrives at a size the bank account can’t meet without leaving nothing for wages. The director’s accountant estimates the income tax would need more than a year on an ATO plan. Instead, the business takes an unsecured loan for the assessment, paid to the ATO on the due date, with repayments matched to its invoicing cycle. The ATO account stays clean, and the new PAYG instalments are budgeted from the start.

How do you avoid the same shock next year?

• Open a tax savings account and move a set share of each month’s profit into it.
• Review profit quarterly with your bookkeeper, not just at year-end.
• Factor higher PAYG instalments into your cash-flow forecast.
• Talk to us early if growth plans will strain cash at tax time.

What about trusts and partnerships?

Where profits are distributed from a trust or partnership, the tax is often payable by the individuals who receive them rather than the business. Borrowing structures and deductibility can differ in those cases, so speak to your accountant about who should borrow and how.

Questions to ask your accountant before borrowing

• What’s the exact assessment amount and due date?
• How will this year’s result change my PAYG instalments?
• Is an ATO plan or a loan cheaper after tax for my structure?
• Who should borrow — the company, the trust, or me?
• What should I set aside each month so this doesn’t recur?

Want to keep your ATO account clean?

If a tax bill is due and paying it in one hit would starve the business of working capital, see if you qualify. There’s no credit check to enquire, we won’t push your details out to a pile of lenders, and a real person will talk through whether a loan or the ATO’s own plan is the better fit. Accurate numbers on the form — the assessment amount and due date in particular — make that first conversation genuinely useful.