Restructure or refinance your ATO debt? An honest guide to choosing

Why is this the decision that matters most?

For a company with significant ATO debt, there are really two broad paths. You can pay the debt in full — from cash, a plan or a loan — and carry on. Or you can compromise the debt through a formal process such as small business restructuring or a deed of company arrangement, where creditors accept less. Everything else is a variation on those two.

We’re a funder, so we’re obviously on one side of that line. That’s exactly why we want to be fair about when the other side is right.

Step 1: Is the business viable?

Strip out the ATO debt and ask: does the business cover its running costs, pay new tax as it falls due, and make some profit? Look at the last six months honestly, not the best month.

• Yes, clearly. Refinancing is usually worth exploring first. The debt is a timing problem, not a business problem.
• Yes, just. Possibly — but repayments must fit inside a realistic, not optimistic, budget.
• No. Borrowing will probably make things worse. A restructure (if eligible) or other registered process may be the more responsible path. Free advice from the Small Business Debt Helpline (1800 413 828) is a good first step.

Step 2: Is any of the debt locked down?

If PAYG withholding or GST was reported more than three months late, the director penalty for those amounts can only be remitted by paying in full. The ATO says a successful SBR won’t remit a lockdown penalty, and liquidation doesn’t either. If a large share of the debt is locked down, a restructure may reduce what the company owes while leaving you personally liable for the same amounts. That tilts the decision strongly towards paying. See lockdown DPNs.

Step 3: Is there security or serviceability?

• Property equity — residential or commercial — opens up secured loans from $20,000 to $5,000,000, often with longer terms.
• Strong, steady deposits support unsecured loans, typically $5,000 to $500,000.
• Neither — refinancing may not be available, and a restructure might be the only realistic route.

Step 4: What matters most to you?

Priority	Leans towards
Keeping full control of the company	Refinance (SBR keeps control with oversight; VA and liquidation don’t)
Paying creditors, suppliers and the ATO in full	Refinance
Avoiding a formal insolvency event on your record	Refinance
Keeping SBR available for the future	Refinance (SBR triggers a 7-year bar)
Reducing total debt you can’t otherwise repay	Restructure
Avoiding new borrowing secured on your home	Restructure or ATO plan

How do the numbers compare?

ASIC’s review of SBR from 2022 to 2024 found a median dividend of 20 cents in the dollar and median practitioner fees of around $16,000 for the restructuring stage, with plan-stage fees on top. That can be a big reduction in debt. Against it, weigh the fees, any adviser fees, the lockdown exposure that remains, the reputational effect with suppliers and lenders, and the 7-year bar.

Refinancing pays creditors in full, involves no practitioner fees, and removes every director penalty on the amounts paid. Its cost is the loan’s total cost over its term, and the commitment to repay it. Our payment plan vs loan tool and refinancing ATO debt page can help with that side.

Two illustrative examples

Refinance fits. A landscaping company owes the ATO in GST and withholding, much of it locked down after BAS was lodged late during the director’s illness. Trading has fully recovered and the director owns a home with good equity. A restructure wouldn’t remove the lockdown penalties. A second mortgage pays the ATO in full; the director keeps the company and her personal exposure is gone.

Restructure fits. A retail company owes the ATO, its landlord and suppliers well beyond what it could repay over any reasonable term. There’s no property, trading is marginal, and its BAS has always been lodged on time, so no lockdown applies. A registered SBR practitioner helps it propose a plan creditors accept; the directors keep running a smaller, viable business.

What if you’re genuinely unsure about viability?

Many owners can’t say with confidence whether the business is viable, especially after a rough year. Three practical tests help:

1. The last three months. Excluding the ATO debt, did revenue cover wages, rent, suppliers, super and the current BAS?
2. The next three months. With known contracts and seasonality, will it?
3. The stress test. If revenue fell by a modest amount, would it still cover those costs plus a loan repayment?

Your accountant can help build a simple 13-week cash-flow forecast to answer these properly. If the answers are mostly yes, refinancing deserves a serious look. If they’re mostly no, borrowing — especially against your home — is likely to deepen the problem, and a registered professional or the free Small Business Debt Helpline (1800 413 828) should be your next call.

Get both options in writing

Ask the practitioner for a written estimate of all restructuring costs and the likely plan, and ask the lender for a written quote showing total cost. Comparing two documents is far easier — and fairer — than comparing two conversations.

Not sure which side you’re on?

Our ATO debt options checker gives a ranked view in two minutes. If refinancing looks possible, see if you qualify — there’s no credit check to enquire, your details stay with us rather than being circulated among lenders, and a real person will tell you honestly if a restructure is the better answer. Please give accurate figures, including which amounts are locked down.