Running a business doesn’t always go to plan, and tax debt can build up faster than you’d expect.
I see it a lot as a broker. Clients fall behind with the ATO, set up a payment arrangement, and then find the monthly repayments are squeezing everything else.
That’s where some recent clients of mine were. They had a large ATO debt and a payment plan already in place, but it was getting harder to keep up alongside their mortgage and normal living costs. They needed a way to get on top of it.
Where they were at
They’d been making regular payments under their ATO arrangement, but with the mortgage on top, the numbers weren’t working any more. They did have equity in their property, so the question was whether we could use it to clear the tax debt and restructure their finances in a way they could manage.
Using a specialist lender
Most banks have strict policies around tax debt, especially when the amount is large. Some specialist non-bank lenders take a more flexible view and will look at refinancing applications where ATO debt is involved.
After going through their situation in detail, we refinanced with a specialist non-bank lender. The new loan released enough equity to pay the ATO in full, so the payment arrangement was closed and they had one mortgage to focus on.
Why go to a higher rate?
I always explain this one carefully. The loan with the lowest rate isn’t always the right loan.
The specialist lender’s rate was higher than a bank would offer. What it bought them was the chance to clear the tax debt and get out from under the repayment arrangement that was stretching them so thin. Before we went ahead, we talked through the extra interest and what the change would mean for their overall position, so they made the decision knowing the trade-off.
The plan from here
This isn’t meant to be where they stay. We’ve agreed to sit down again in six to 12 months and look at their income, commitments and credit position, and whether a more competitive lender would take them on.
If their circumstances and lender policies line up, we may be able to refinance again and bring their rate down. That isn’t guaranteed, which is why we made sure the current loan is affordable on its own, even if moving takes longer than planned.
Struggling with ATO debt?
If you own a home and you’re carrying tax debt, you may have more options than you think. Depending on your equity and what you can comfortably repay, refinancing could be worth a look. Debt consolidation looks different in every way, thats where we come in to help you get it right.
It won’t suit everyone. A higher rate or a longer loan term can mean paying more over the life of the debt, so it needs to be weighed up properly. Knowing what’s possible helps you make that call with your eyes open.
At The Broker Society I work with major banks and specialist non-bank lenders, so we can look across the market for something that fits your situation. You can read more about our ATO debt consolidation help, or make an appointment for a confidential chat.
General information only. This case study is based on an individual client scenario and is not financial or tax advice. Refinancing to consolidate ATO debt may increase the interest rate, loan balance, loan term and total interest payable. It may also turn unsecured debt into debt secured against your home, which puts the property at risk if repayments can’t be kept up. Refinancing again in six to 12 months is not guaranteed and will depend on the borrower’s circumstances and lender policies at the time. Clients should consider getting independent tax and financial advice. All lending is subject to lender assessment and approval.
