The business owes the ATO:
$475,000.
There’s property available.
Estimated value:
$2.6 million.
Existing mortgage:
$980,000.
The owner looks at those numbers and thinks:
“There’s more than enough equity. Why don’t I just refinance the ATO against the property?”
Potentially, property may form part of a finance solution.
But don’t jump from:
“I have equity”
to:
“I should secure the tax debt against it.”
Those are two different questions.
Property can potentially open finance options that may not otherwise be available.
It can also materially change the risk attached to the debt.
Before using property to deal with ATO debt, I want to understand:
what property is available,
who owns it,
what is already secured against it,
what the business can afford,
why the ATO debt arose,
whether the problem has been fixed,
and what the proposed refinance actually achieves.
Because clearing the ATO balance isn’t enough.
The business needs to be in a better position afterwards.
The Burnie Business
Consider an established business operating from Burnie and servicing customers across Tasmania.
The business works across:
manufacturing,
industrial maintenance,
transport support,
and equipment services.
Trading history:
17 years.
Annual turnover:
approximately $8.2 million.
Employees:
34.
ATO debt:
$475,000.
The business owns the commercial property it operates from.
Estimated property value:
$2.6 million.
Existing commercial property loan:
$980,000.
The owner wants to investigate using property-secured finance to clear the ATO debt.
At first glance:
there appears to be substantial equity.
But that’s only the beginning of the assessment.
Don’t Call $1.62 Million “Available Equity”
Property value:
$2.6 million
Existing debt:
$980,000
Arithmetic difference:
$1.62 million.
That does not mean the business can automatically borrow:
$1.62 million.
A lender may consider:
its own valuation,
acceptable loan-to-value ratio,
property type,
location,
security position,
serviceability,
credit history,
and the overall transaction.
The usable amount may be materially different.
Property Value Isn’t the Same as Borrowing Capacity
This distinction matters.
A business owner may own a property worth:
$3 million
and still be unable to obtain the amount they want.
Why?
Because:
security doesn’t replace serviceability.
The lender still needs to be satisfied that the debt can be repaid.
Why Does the Business Owe $475,000?
Before discussing property, establish this.
Suppose the Burnie business expanded rapidly over:
three years.
Turnover grew from:
$5.1 million
to:
$8.2 million.
During the expansion, the business:
added employees,
purchased equipment,
increased inventory,
and funded larger customer projects.
Customers paid:
30 to 60 days
after invoice.
Cash became tight.
The business allowed tax obligations to fall behind.
Eventually:
ATO debt reached approximately $590,000.
Current balance:
$475,000.
Has the Underlying Problem Been Fixed?
This is more important than the property value.
Today the business has:
improved debtor collection,
reduced excess inventory,
stopped purchasing major equipment from cash,
improved margins,
and begun maintaining current tax obligations.
The historical:
$475,000
remains.
That’s one scenario where refinancing may be worth investigating.
Now Change the Story
Same property.
Same value.
Same:
$475,000
ATO debt.
But the business is currently losing:
$70,000 per month.
New tax obligations continue to fall behind.
Now:
should we secure $475,000 against property?
Probably not without understanding and addressing the continuing losses.
Property Can Move the Debt
It Doesn’t Fix the Business
Suppose property finance clears the ATO:
ATO before settlement:
$475,000
ATO after settlement:
$0
Great.
But now the business owes the new lender:
approximately $475,000
plus any applicable costs or other amounts included in the transaction.
If the business is still losing money, the debt problem hasn’t disappeared.
It has changed creditor.
This Is the Question I Want Answered
What changes the day after settlement?
Does the business now have:
better cashflow?
more manageable repayments?
a longer-term structure?
a stronger working-capital reserve?
current tax obligations being maintained?
Or has it simply replaced:
ATO debt
with
property debt?
The Property Might Be Commercial
In the Burnie scenario, the property is:
the business premises.
That may potentially be relevant to commercial property-secured finance.
But property type matters.
A standard commercial warehouse may be viewed differently from:
a highly specialised property,
remote property,
vacant land,
or another unusual security.
The lender will assess the actual property.
What If the Property Is Residential?
Different decision.
Imagine the business owner has:
ATO debt:
$475,000
and owns a home worth:
$1.8 million.
Existing home loan:
$520,000.
There may appear to be substantial equity.
But using the home to secure business tax debt changes the owner’s personal risk.
That deserves careful consideration.
Don’t Treat Your Home Like Spare Business Cash
Property equity isn’t money sitting in a transaction account.
To access it through finance, you’re creating or increasing debt secured against an asset.
If the business can’t meet the new commitment, that matters.
Appropriate legal, accounting or financial advice may be important before putting personal property behind business liabilities.
What If an Investment Property Is Available?
Potentially another security option depending on the transaction and lender.
Again:
value,
existing debt,
ownership,
rental income,
property type,
and serviceability
can all matter.
Don’t assume investment property automatically makes the application easy.
Who Owns the Property?
Important.
Is it owned by:
the trading company?
a related company?
a trust?
the directors personally?
another family member?
The ownership structure can affect how a proposed transaction needs to be considered.
Tell us at the beginning.
What If the Property Is Jointly Owned?
Suppose the business owner owns the property with their spouse.
Now the proposed business finance potentially involves an asset owned by someone else as well.
That can introduce:
consent,
guarantee,
legal,
and structural considerations.
Don’t assume one business owner can simply pledge a jointly owned property without involving the other owner.
How Much Finance Does the Business Actually Need?
ATO balance:
$475,000.
Does that mean the finance request should automatically be:
$475,000?
Not necessarily.
Maybe the business has:
$180,000
of surplus cash above its required operating reserve.
Perhaps management decides to contribute:
$100,000
towards the tax debt.
Now the funding requirement is lower.
But Don’t Empty the Business Account
Suppose the business has:
$400,000 cash.
The owner says:
“I’ll put the whole $400,000 into the ATO and only borrow $75,000.”
Sounds conservative.
Until you discover:
weekly payroll:
$95,000
suppliers due this month:
$210,000
and customers don’t pay for another:
30 to 45 days.
Using all available cash could create another working-capital crisis.
Cash Reserve Matters
The right contribution might be:
$0.
Or:
$50,000.
Or:
$150,000.
The answer depends on what the business genuinely needs to operate.
What If the Business Needs More Than the ATO Balance?
This can happen.
Suppose:
ATO debt:
$475,000
Short-term business loan:
$180,000
Credit cards:
$75,000
Working-capital requirement:
$150,000.
Total potential requirement:
$880,000.
Should all of that be consolidated into property-secured finance?
Not automatically.
Analyse Every Debt Before Consolidating It
The short-term facility may be expensive and creating cashflow pressure.
Potentially worth reviewing.
But another facility may have:
reasonable pricing,
a suitable term,
and a clear business purpose.
Don’t refinance good debt simply because property finance is available.
What About Equipment Finance?
Suppose the business owes:
$720,000
across trucks and machinery.
Those assets are productive.
Their existing finance may be appropriately structured.
Why move that debt onto the commercial property?
Maybe there’s no reason.
Property Shouldn’t Become the Security for Everything by Default
The business owns:
trucks.
Finance trucks appropriately.
It owns:
machinery.
Finance machinery appropriately.
Property can potentially support:
property-secured business finance.
But don’t automatically secure every business liability against the property.
What If Property Finance Has a Lower Repayment?
This may be attractive.
Suppose the ATO arrangement requires a substantial regular cash commitment.
A longer-term secured finance structure may produce a different repayment profile.
That could improve working capital.
But lower regular repayment isn’t the only measure.
Ask What the Debt Costs Over Its Life
A longer term can reduce regular repayments.
It can also mean:
the debt remains outstanding for longer.
So compare:
repayment,
term,
interest,
fees,
security,
and total commercial effect.
Don’t choose solely from:
“This payment is lower.”
A $475,000 Tax Debt Can Become Long-Term Property Debt
That’s a significant change.
Maybe that’s appropriate.
Maybe it isn’t.
The owner needs to understand the trade.
What If the Business Plans to Sell the Property?
Important.
Suppose the commercial property may be sold in:
18 months.
A new secured facility could affect:
the sale process,
payout requirements,
and the business’s future plans.
Tell us.
Finance should fit the business strategy.
What If the Property Is Needed for Another Purpose?
Perhaps the owner plans to use property equity to:
purchase another premises,
fund an acquisition,
or expand manufacturing capacity.
Using that borrowing capacity to refinance the ATO may reduce flexibility later.
Again:
there is an opportunity cost.
Equity Is a Business Resource
Use it deliberately.
Don’t use:
$500,000
of potential property capacity
without considering what else the business may need over the next:
two,
three,
or five years.
What If the Business Is About to Buy Another Property?
Then the ATO debt may affect that transaction too.
Perhaps dealing with the tax debt first improves the overall financial position.
Or perhaps using existing property equity now reduces the deposit available for the new property.
We need to understand the sequence.
What If the Business Owes $500,000 and Property Is Worth $5 Million?
Still not an automatic approval.
A lender may see:
strong security.
But if the business can’t service:
$500,000
of additional debt,
the property value doesn’t fix that.
What If the Business Owes Only $200,000?
Still don’t automatically secure it against a $2 million home.
The amount is smaller.
The principle is the same.
What problem are we solving?
What risk are we introducing?
What If There Is No ATO Payment Plan?
That doesn’t automatically determine whether property finance can be investigated.
We need to understand:
the current ATO position,
any relevant action,
the business’s circumstances,
and lender requirements.
What If the Existing Payment Plan Has Defaulted?
Again:
why?
A default caused by:
a one-off customer insolvency
may tell a different story from:
an arrangement that was unaffordable from day one.
But if the business is considering replacing that arrangement with property-secured debt, the reason for the failure becomes especially important.
The New Loan Must Be Affordable
Otherwise:
ATO payment plan failed
becomes
property loan problem.
That’s worse.
What If ATO Debt Is Still Increasing?
This is a major warning sign.
Imagine:
Current ATO debt:
$475,000
New property finance:
$475,000
ATO cleared.
Six months later:
new ATO debt:
$120,000.
Now the business has:
property-secured debt
plus
new tax debt.
That’s exactly the outcome we want to avoid.
The Business Needs a System for Future Tax
Before refinancing historical debt, ask:
How will current obligations be funded?
Does the business:
provision cash?
forecast tax?
review BAS obligations?
manage debtor collection?
maintain adequate working capital?
Something needs to change if the historical problem came from poor cash management.
What If Slow Customers Caused the Problem?
Then property finance may address:
historical ATO debt.
But perhaps the business also needs to address:
its debtor cycle.
Otherwise the same cashflow gap remains.
Example
Average monthly invoicing:
$680,000.
Average customer payment:
52 days.
The business may routinely have:
more than $1 million
locked in outstanding invoices.
If payroll and suppliers are paid much earlier, that’s a structural working-capital gap.
Clearing the ATO doesn’t remove it.
Maybe Debtor Finance Is Relevant Too
Potentially.
Not automatically.
But if customer payment timing is the underlying cause, a working-capital facility connected to receivables may deserve consideration alongside the historical ATO issue.
Different problem.
Different finance structure.
What If Rapid Growth Caused the Debt?
Then forecast the next growth phase.
If turnover is expected to increase from:
$8.2 million
to:
$10 million,
how much additional working capital will that require?
Growth consumes cash before it produces cash.
Don’t clear:
$475,000
of historical ATO debt
and then immediately create another cash shortage through expansion.
What If the Business Has Multiple Properties?
Then the security strategy may be broader.
Perhaps:
commercial property one:
$2.6 million
commercial property two:
$1.4 million
investment property:
$900,000.
Don’t automatically offer all three.
Use only the security appropriate to the transaction and lender requirements.
More Security Isn’t Automatically Better for the Borrower
The lender may prefer more security.
The borrower should still understand what is being offered.
There is no prize for unnecessarily securing every asset you own.
What If a Lender Wants a First Mortgage?
Then we need to understand:
who currently holds the mortgage,
whether refinance is required,
what debt must be paid out,
and whether the overall transaction makes sense.
The ATO refinance could become part of a larger property refinance.
Don’t Ignore the Existing Property Loan
Existing balance:
$980,000.
What is:
the rate,
remaining term,
repayment structure,
and lender?
If accessing property equity requires refinancing that loan, compare the entire transaction.
Don’t improve one:
$475,000
component
while making the:
$980,000
component worse.
Whole-of-Transaction Thinking Matters
Existing property debt:
$980,000
ATO:
$475,000
Potential combined secured debt:
approximately:
$1.455 million
before costs or other restructuring.
That’s the transaction to assess.
Not just:
“Can I borrow $475,000?”
What Does the Business Look Like 12 Months Later?
This is my test.
ATO:
$0
Property finance:
being maintained.
Current tax obligations:
up to date.
Working capital:
stable.
Debtors:
managed.
Business:
profitable.
That looks like the refinance achieved something.
Bad 12-Month Outcome
ATO:
$140,000 again
Property debt:
still approximately $475,000
Short-term finance:
another $150,000
Cash:
tight.
That’s not a successful refinance.
It merely delayed the problem.
Finance Should Improve the Structure
Not just today’s bank balance.
The goal is to put the business in a position where:
historical debt is dealt with
and
new debt isn’t immediately created.
So Can Property Be Used to Refinance ATO Debt?
Potentially.
Commercial or residential property may be relevant to certain business finance structures depending on:
ownership,
value,
existing debt,
available equity,
serviceability,
credit position,
lender requirements,
and the overall transaction.
But having property doesn’t mean:
finance is guaranteed
or
property-secured finance is automatically the right solution.
If Your Business Owes the ATO and You Have Property, Start With These Numbers
Tell Thrive Broking:
current ATO balance,
whether an ATO payment arrangement exists,
whether it is current,
whether required lodgements are current,
annual turnover,
trading history,
profitability,
existing business debts,
and what caused the tax debt.
Then tell us about the property:
type of property,
who owns it,
approximate value,
existing mortgage balance,
and current lender if known.
Also tell us:
what you want the finance to achieve.
Clear the ATO only?
Reduce the ATO?
Restructure other short-term debt?
Protect working capital?
There may be several ways to look at the problem.
The important thing is that we don’t start with:
“There’s plenty of equity. Let’s borrow against it.”
We start with:
“What is the business problem, and does using this property actually create a better financial position?”
Because property can be powerful security.
It should also be used carefully.