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ATO tax debt is not unusual among self-employed Australians, including sole traders, company directors and business owners. This is often due to variable income and irregular payment cycles, which can make it harder to meet tax obligations as they arise.
For homeowners with sufficient equity, one option is to consolidate this debt into a mortgage. This involves clearing the ATO balance in full at settlement and replacing it with a single loan repayment, potentially at a lower interest rate than the ATO's general interest charge.
This guide explains how the process works, along with the key benefits, risks and considerations.
ATO debt consolidation involves using a home loan refinance to access equity and repay an outstanding tax liability. Your existing loan is either increased or replaced, with the additional funds used to repay the ATO at settlement. By doing this, you are converting an unsecured tax liability into a debt secured against your property. While this may reduce repayment pressure due to lower interest rates and longer loan terms, it also changes the nature of the debt.
There are several ways to consolidate debt, such as personal loans or balance transfer credit cards. These options do not require security but often come with higher interest rates and stricter lending criteria, particularly for borrowers with lower credit scores.
At Yard, we specialise in secured mortgage-based debt consolidation. This involves refinancing your home loan, using a lump sum at settlement to clear the ATO debt, and rolling the balance into a single loan repayment. This approach may suit homeowners with sufficient equity who can service a higher loan amount and are looking to simplify their repayments. As with any financial decision, it is important to consider your overall position and seek advice from an accountant or financial adviser before proceeding.
Consolidating ATO debt into a home loan is typically done through refinancing. Your existing home loan is increased with the additional funds used to repay the ATO at settlement.
Accessing additional funds depends on the gap between your property’s value and your current loan balance. As part of the process, a property valuation is completed by the lender to confirm its current market value. In most cases, borrowing is limited to up to 80% of the property value without requiring Lenders Mortgage Insurance. In some circumstances, borrowing above 80% may be possible with Lenders Mortgage Insurance, typically up to a maximum of 90% for debt consolidation.
For example, if a property is valued at $850,000 and the current loan is $500,000, the maximum loan at 80% LVR is $680,000. This may allow access to additional funds to clear an ATO debt, with repayments then consolidated into one loan repayment.
Before proceeding, it is important to understand both the potential advantages and the trade-offs involved. While refinancing may improve cash flow and simplify repayments, it also changes the nature and security of the debt. The following outlines the key points to help inform your decision.
Consolidating ATO debt into your mortgage, whether with an owner-occupied home loan or an investment property loan, is a step-by-step process that begins with reviewing your financial position.
Yard is a non-bank lender with expertise in ATO debt consolidation through mortgage refinancing. We understand the complexities of business debt, including outstanding ATO balances, varying income structures and non-traditional financial situations.
Each application is assessed on its individual merits, with our Loan Consultants guiding you through the process and helping identify options suited to your circumstances. If your situation requires a more considered lending approach, Yard’s expertise ensures you have options around your needs. You can learn more about how debt consolidation works in our guide to loan consolidation and our debt consolidation home loan guide.
Yes. ATO debt can be consolidated alongside other liabilities such as credit cards, personal loans or business-related debts. This depends on your overall financial position, available equity in your property and the lender’s assessment criteria. For a broader overview of how debt consolidation works, see our guide to loan consolidation.
Yes, it may still be possible to refinance. Self-employed borrowers without up-to-date tax returns can apply for low doc or alt doc home loans, which are specifically designed for those who cannot provide traditional income documentation.
When refinancing, income can be verified using alternative documents such as Business Activity Statements, bank statements or an accountant’s declaration, instead of tax returns. These loans are commonly used by sole traders, contractors and business owners with variable income, including those who have not yet prepared and lodged their tax returns.
Yard takes a flexible approach to alt doc refinancing, assessing your overall financial position and ability to service the loan rather than relying solely on standard tax documentation.
Yes. Being on a payment plan does not automatically prevent you from refinancing. Some borrowers refinance specifically to consolidate their ATO debt into their mortgage.
No. The ATO debt is typically repaid at settlement using the funds from the refinance. However, it is important that your tax lodgements are up to date and that the outstanding balance is clearly identified.
The timeframe varies depending on the complexity of the application, but most applications are completed within 4 to 6 weeks. Factors such as documentation, valuation and lender assessment can all influence timing.
Most lenders, including Yard, generally lend up to 80% of the property value without requiring Lenders Mortgage Insurance. The amount of accessible funds will depend on your current loan balance and property valuation.
No. ATO tax debt may arise for any Australian who lodges a tax return. Salaried employees may have an outstanding tax liability if insufficient tax was withheld during the year, or if they had received income from investments, rental properties, or other sources not covered by standard pay-as-you-go arrangements.
Once settled, the ATO debt is cleared in full and incorporated into your home loan. You will then make a single repayment to your lender based on the new loan structure.
The ATO does not approve the refinance itself. However, a payout figure is required to ensure the debt is cleared in full at settlement. In some cases, communication with the ATO may be needed to confirm the final balance.
New loan inquiries: hello@yard.com.au
Service requests: help@yard.com.au
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