There are lenders that will consider ATO debt

All Australians are required to lodge a tax return each financial year but for the self-employed, this is complex and time consuming so it often doesn’t get done on time.

In addition, many people make mistakes on their tax returns which can come back to bite them years later.

Have you got a large debt with the tax office? Read on to find out how you can refinance your tax bill and consolidate your mortgage.

Can I refinance my tax debt?

Yes! You probably already know that most banks will not approve a loan to refinance an outstanding tax bill from the Australian Taxation Office (ATO).

However, we can help you borrow up to 85% of the value of your property (85% LVR) with a specialist lender if you meet the following criteria:

  • Security: You must already own real estate which can be used as security for the loan.
  • 85% LVR: The tax debt plus your current mortgage must be less than 85% of the value of your property when combined.
  • Late repayments: If you are overdue with your repayments or have a bad credit history then you must have a reasonable explanation.
  • Income evidence: You must be able to prove that you can afford the new mortgage using payslips, BAS, tax returns, bank statements and/or an accountant’s letter. Low doc loans are available on a case by case basis.

If you have equity in your property then please call us on 1300 889 743 or enquire online to talk to one of our experienced mortgage brokers.

Tax debts can now be recorded on your credit file!

Positive or Comprehensive Credit Reporting (CCR) has seen many credit providers provide more information about how you manage your credit and debt facilities than they have in the past.

This includes any credit card and personal loan accounts that you have as well as utility and telco bills.

Recently, the Australian Taxation Office (ATO) announced that it would start recording tax debt defaults on the credit files of business owners from 1 July 2017.

Tax debt affects thousands of Australian businesses so this a major change!

At the moment, the ATO will only disclose tax debt information to credit reporting agencies like Equifax (used to be Veda Advantage) in the following circumstances:

  • Businesses with Australian Business Numbers (ABNs)
  • Businesses with tax debt in excess of $10,000
  • The tax debt is at least 90 days overdue and the business hasn’t contacted the ATO to manage the debt from 1 July 2017

Having a tax debt default recorded on your credit can reduce your borrow power or ability to qualify for a home loan in the future.

That’s because the default will be recorded on your credit file for 5 years.

Avoid getting a default recorded and discuss your situation with your accountant so you can maintain communication with the tax office.

If refinancing your tax debt is an option, speak to our mortgage brokers about it so we can help find you a solution.

What was the reason for the tax debt?

Lenders may view your situation differently depending on the cause of the tax debt. Some possible causes are as follows:

  • Accountant error: More lenders will be accessible to you since this shows irresponsibility on someone else’s part and not yours.
  • Tax returns not lodged: If you have not lodged your tax returns on time then banks will perceive you to be less reliable with your commitments and will take this into consideration while they evaluate your loan application.
  • Large Capital Gains Tax (CGT) bill: a borrower with a debt due to CGT is viewed more favourably than those who have not attempted to pay the tax at all. It is usually a one off event as opposed to an on-going issue and thus the lenders are more forgiving.

We’re here to assist! Call us on 1300 889 743 or enquire online and one of our mortgage brokers will be in touch with you soon.

Can you prove your income or do you need a low doc loan?

We find that many people with an outstanding tax debt do not have up to date tax returns, which makes it more difficult to apply for a mortgage.

If you are self employed then some of our lenders will allow you to provide alternative income evidence such as your BAS, bank account statements or an accountant’s letter. This is known as a low doc loan.

If you cannot provide any evidence of your income at all then we may be able to get a no doc loan for you. See our no doc loans page for the specific qualifying criteria.

Has the ATO lodged a caveat on your property?

Depending on the size of your debt and whether or not you have missed repayments, the ATO may move quickly to lodge a caveat on your property.

A caveat can be placed on a commercial or personal property by anyone who has an interest in the property but is not necessarily an owner. This is the ATO’s method of making sure that you cannot sell your property without repaying the tax that you owe.

Some of our lenders will refinance your loan despite a caveat from the ATO. In other words your tax debt does not have to be paid off by you prior to the loan application.

Is the ATO taking legal action against you?

The ATO can be quite aggressive with taxpayers who have had a bad repayment history or who have not communicated with them. It is wise to let the ATO know immediately if you cannot fulfil your obligations. The more you ignore the responsibility then the more severe the actions you might have to face.

If the ATO takes you to court, it may result in a court writ or judgement being recorded on your credit file. On top of that, some of our major lenders will not accept future loan applications from you because they will consider you to be a high risk client.

Even if a court writ is paid it will remain on your credit file for four years, whereas a judgement will remain on your credit file for five years.

On the bright side, we can still help you if you have gone to court with the ATO! We know specialist lenders who can refinance your mortgage and pay the full debt including the General Interest Charge (GIC) and legal fees.

Please call us on 1300 889 743 or enquire online to speak to a broker who specialises in refinancing tax debt.

Have you made a payment arrangement with the ATO?

If you have been successful in making timely instalments then this shows your intention to repay the debt and will help in getting you a competitive interest rate with a specialist lender.

If you can provide printouts from the ATO portal showing that you have made your repayments on time for the last six months then your application will be viewed more favourably.

Why don’t banks like refinancing tax debts?

Almost all Australian banks have a strict policy that they will not refinance a loan for someone if they have an outstanding tax debt. Why is this the case?

  • Sign of bad character: If people often fail to lodge their tax returns with the ATO or fail to make the payments on time it shows a lack of intention to repay their debts in general.
  • Sign of financial distress: Applying to refinance your tax debts already signifies an unstable financial position. Banks are concerned that you may be experiencing financial hardship and wont be able to repay your debt to them.
  • Repeat problems: Banks have learned that people with tax debts have a higher chance of having another tax debt in the future or other financial problems.
  • Security concerns: If a property is sold then the bank’s mortgage will normally be repaid before the tax debt. However there are some instances when the ATO may make a claim from the sale proceeds of a property and take payment before a bank. In this case the bank may make a loss.

Tips to help you pay off your tax debt

Are you trying to negotiate with the ATO to pay off your debt without refinancing? Follow these tips and also seek your own legal and financial advice.

  • If you owe money to the ATO then always stay in contact with them and your accountant.
  • Follow your accountant’s advice as they have seen similar situations with other clients.
  • Try to make your instalments on time until we can refinance your debt.
  • Try to avoid the ATO taking legal action against you or lodging a caveat on your home, as this can prevent us from using some of our lenders.

How do I apply for a home loan?

We understand that having many unsecured debts can be stressful. Let us do the worrying on your behalf!

Feel free to call us on 1300 889 743 or enquire online to talk to one of our mortgage brokers who can help you to consolidate your debt and get a mortgage with a lower interest rate.

  • Isaac

    I am a self-employed plumber and I’ve some debts with the tax office. I have heard that banks refinance the ATO debt, is there any limit for refinancing the ATO debt?

  • Hi Isaac,

    The limit for refinancing the ATO debt depends on the bank as the lenders do not like tax debt but there may be some specialist lenders who may lend to such and they also go only up to 80% to stay outside of Mortgage Insurers . Also, you may need to explain to them why you did have ATO debt in the first place.

  • stutchbury

    What about using projected income or any other future income for a low doc loan?

  • Hey stutchbury, you can check out the alternative income verification page to find out how you may be able to use future income to get a low doc loan. Here’s the link to the page:

  • alvor

    Why will the lender need a letter from my accountant?

  • Hello alvor,

    When assessing a loan application, the lender needs to be certain that they are assessing your income and other aspects of your loan application in the correct way. A letter from your accountant will help clarify these issues and can often allow lenders to bend their guidelines to accept home loans that they would otherwise decline.

  • jay

    How expensive can no doc loans be? I imagine the higher the LVR, the more the interest?

  • Hi jay,
    No doc loans are expensive and reasonably so since the banks are taking a higher amount of risk. So for a 65% LVR no doc loan, we can usually obtain a loan through larger second tier lenders at rates that are 2 – 3% higher than the banks. However, as you’ve stated, a higher LVR loan, of 80% of the property value, you’d only get super expensive short term caveat loans that are available from 24% p.a. and above!

  • Bella

    Why are the prime lenders quite conservative when approving cash out loans?

  • Hey Bella,
    The major banks are cautious when approving equity loans, in particular when they have little evidence of what you are doing with the money. This is because there are a small number of individuals who do not use their equity responsibly or do not use the funds for the purpose they tell the bank. The majority of lenders have a “cash out policy” which restricts the amount of money that you can release to as little as $10,000 to $50,000! Thankfully, not every lender has cash out restrictions.

  • LePham

    I have a $42,000 payment arrangement plan with ATO. I have an existing mortgage with ING and my current LVR is approx. 70% of the property value. Can I extract equity out of it and repay my ATO debt?

  • Hi LePham,
    Different banks have their lending policies regarding equity release and very few banks may allow you to do that. If you can provide printouts from the ATO portal showing that you have made your repayments on time for the last six months and the payment arrangement plan, then your application will be viewed more favourably.

    You should contact your lender and speak with them. If they don’t allow this, then you can contact us on 1300 889 743. We have some lenders on our panel who could help you with refinancing your ATO debt.

  • Manto18

    I have an outstanding tax debt at the moment and have been making regular payments to them. Due to this, I don’t have full tax returns for the last year. I’m a self-employed florist. I want to buy a property, how should I approach a bank for this?

  • Hi Manto,
    It’s common that many people with an outstanding tax debt do not have up to date tax returns, which makes it more difficult to apply for a mortgage. If you are self-employed, then some of our lenders will allow you to provide alternative income evidence such as your BAS, bank account statements or an accountant’s letter. This is known as a low doc loan. You can see our low doc loans page for the specific qualifying criteria.