An ATO tax debt and a car loan application often collide in October and November, when tax returns land and some people find they owe money instead of getting a refund. Owing the ATO does not automatically stop you getting car finance, but it changes your numbers. The debt grows with interest every day, a payment plan becomes a regular commitment in your budget, and lenders reading your bank statements or application may see both. This guide explains how ATO debts work in 2026 and what that means for your borrowing power.
Quick answer: An ATO tax debt attracts the general interest charge, set at 11.51% a year for October to December 2026, compounding daily. If you owe $200,000 or less you may be able to set up a payment plan online. A lender may treat those instalments as an ongoing expense, so a plan that is set up and kept up to date is usually easier to explain than an unmanaged debt.
How ATO tax debt interest works in 2026
When tax is not paid by its due date, the ATO adds the general interest charge (GIC). It is worked out daily on a compounding basis on the overdue amount, so the balance rises every day it stays unpaid. The ATO reviews the rate each quarter.
According to the ATO's published GIC rates, the annual rate is:
- 11.51% for October to December 2026 (a daily rate of 0.03153425%)
- 11.43% for July to September 2026
- 10.96% for April to June 2026
That is a high rate for an unsecured balance. There is another cost many people miss. GIC and shortfall interest charged on or after 1 July 2025 can no longer be claimed as a tax deduction. Before that date, people could claim ATO interest in their return, which softened the cost. Now the full charge comes out of your own pocket.
For a car buyer, the practical point is simple. Every month an ATO debt sits unmanaged, it grows, and so does the amount you will need to repay before your budget is back to normal.
Setting up an ATO payment plan
The ATO says the quickest way to set up a payment plan is through its online services. If you owe $200,000 or less, you may be able to set one up yourself:
- Individuals and sole traders use ATO online services through a myGov account linked to the ATO, then select Tax, Payments and Payment plans.
- The self-help phone line is another option for amounts of $200,000 or less.
- Separate plans are needed if you have both income tax and activity statement debts.
When you set up a plan online, the ATO gives you an upfront amount and suggested instalments, and you can vary them within limits. Under an ATO payment plan, you pay an agreed amount weekly, fortnightly or monthly until the balance is cleared. GIC keeps applying while you pay, so paying the debt over a shorter period costs less interest.
You will need to phone the ATO instead if you owe more than $200,000, need longer than 2 years to repay, need to renegotiate an existing plan, or have defaulted on or cancelled 2 or more plans in the past 12 months. In that call the ATO asks about your bank balances, any lines of credit, your income, expenses and assets, much like a lender would.
How a tax debt can affect your car loan application
A car loan application usually asks about your debts and regular commitments, and many lenders review recent bank statements. An ATO payment plan shows up there as a regular payment to the ATO. Lenders set their own credit policy, so treatment varies, but a lender may:
- Count the instalments as an expense when it works out serviceability, which can reduce the amount it is willing to lend
- Ask questions about the debt, including how large it is, why it arose and whether the plan is up to date
- Look at your recent tax position, especially if you are self-employed and your income is assessed from returns and notices of assessment
Being upfront matters. If an application leaves out a debt that a lender later finds in your statements, it can create doubts about the rest of the application. Disclosing it, with a plan already in place, lets the lender assess the full picture.
If you have not yet lodged, our guide to why your 31 October tax return matters for your car loan covers the lodgment side, including notices of assessment.
Will an ATO debt appear on your credit report?
For most individuals with a personal income tax debt, the ATO's rules on reporting to credit bureaus do not apply. Those rules cover business tax debts. The ATO may report a business's tax debt to a credit reporting bureau only when all of these are true:
- The business has an Australian business number (ABN) and is not an excluded entity such as a registered charity
- At least $100,000 of tax debt is overdue by more than 90 days
- The business is not engaging with the ATO to manage the debt
- There is no active Tax Ombudsman complaint about the intent to report
Complying with a payment plan counts as engaging with the ATO, so a business on a plan it is keeping up with is not reported. The ATO sends a written notice first and allows 28 days to act. Reported information is removed once the debt is paid in full or the business engages with the ATO to manage it.
This matters for sole traders and business owners applying for ABN vehicle finance or a low doc ABN car loan, because business credit reports can be part of the assessment.
Your tax refund may not arrive
Some buyers plan to use a tax refund towards a car deposit. If you owe the ATO, that plan may not work. The ATO says that if you do not pay on time, it will use future refunds or credits to repay what you owe. This is called offsetting, and it is required by law.
It also applies to debts on hold. These are older debts the ATO has paused collecting because it was not cost effective at the time. The ATO does not chase a debt on hold, but it remains legally payable, and any refund you become entitled to can be used to reduce it. The ATO has been adding debts on hold back into account balances, so some people see an amount owing that they had forgotten about. If you have a payment plan and a debt on hold is added to your balance, the ATO gives you 6 months to pay it in full or set up a new plan.
Before you count on a refund for a deposit, log in to ATO online services and check your account balance.
Budgeting for a car loan and a payment plan together
If you need a car while paying off an ATO debt, the goal is a budget that can carry both comfortably. A few practical steps:
- Work out the real total. Add your ATO instalment, the expected car repayment, insurance, registration and running costs. Our car loan calculators can help estimate repayments.
- Keep the plan current. The ATO says you must also lodge on time and pay any new tax debts in full and on time. If you do not, the plan may default, making the full overdue balance immediately payable. Regular, on-time instalments are also easier to explain to a lender.
- Consider the timing. If the debt is close to paid off, waiting until it is cleared may improve your borrowing power. If you need the car now, a smaller loan amount may be easier to service.
- Review your other expenses. Our guide to household expenses in loan applications explains how lenders view your living costs.
If you also carry a study loan, HECS-HELP debt and borrowing power explains how that repayment is treated, as it is collected through the tax system too.
What to do if your application has been declined
If a lender has already said no and a tax debt was part of the reason, the first step is understanding exactly why. Our guide on what to do after a car loan is declined walks through the next steps, including why lodging several applications in a short time can work against you.
Lenders differ in how they view tax debts and payment plans. A broker can compare options across a panel of lenders and match your situation to lenders whose policies may fit. You can start a car loan enquiry with Loanseekers to compare options.
