Here’s the fun thing about owing the ATO money: absolutely nothing.

So not only are you handing over cash to the tax office, you’re not even getting the small consolation prize of writing it off at tax time.

But don’t stress.

With a bit of clever juggling, you can turn that horrible non-deductible ATO interest into lovely, deductible interest.

Here’s how...

1. Refinance Against Your Home Loan

If you’ve got equity in the house, you can draw down on that equity to pay out your ATO debt.

• Why bother? Home loan interest is usually way cheaper than ATO interest.‍
• Bonus! If it’s tied to the business, the interest becomes deductible in the business also.‍
• Heads up: Mixing private and business debt can get messy, so make sure you chat to your accountant first. Otherwise they will develop a twitch every time they look at your loan statement.
  

2. Unlock Equity in Equipment or Vehicles

Own your car, truck, or equipment outright? It’s not just sitting in the driveway looking pretty. You can refinance it to free up cash.

• Why bother? Turns unused equity into working capital.
• Bonus! Paying off business ATO debt with borrowed funds = deductible interest.‍
• Heads up: Don’t get carried away. Just because you can gear up your forklift doesn’t mean you should. Chat to your accountant first.

3. Use Working Capital Products

We’re talking overdrafts, debtor finance, working capital facilities – all the exciting things bankers talk about at parties.

• Why bother? They’re designed to plug business cash flow gaps. Particularly useful if you’re owed a heap of cash.
• Bonus! The interest is deductible, and it stops you from getting strangled by ATO repayments.‍
• Heads up: Rates can be higher than standard loans, so shop around before you dive in.

4. Tap Into Investment Loan Offsets or Redraw

Got an investment property loan with redraw or an offset account? That can be your ticket.

• Why bother? If you take this money out of the redraw or offset, the interest on the investment loan is still deductible.‍
• Bonus! Because the original loan was for investment, the interest stays deductible even after you pull cash out of the offset or redraw. You keep the tax benefit and you stop the ATO bleeding you dry.‍
• Heads up: Keep the link between loan and investment squeaky clean so the deductibility stands up if anyone (i.e the ATO) asks questions.

5. Transition to Retirement (TTR) Pension / Super Drawdown

If you’ve hit preservation age (read: old enough to get at your super), you can use a TTR pension or super drawdown.

• Why bother? Super can be a tax-effective way to source funds.
• ‍Bonus! The interest you save at current ATO rates will likely beat what your super fund is giving you... unless you’re one of the lucky few whose fund manager is secretly Warren Buffett.
• ‍Heads up: This is advanced stuff. Do it with advice, not on a whim after three beers.

Bottom line

👉 ATO debt is like the world’s worst hangover: you can’t avoid it, but you can make it hurt less. With the right shuffle of loans, you turn ugly, non-deductible interest into deductible interest that at least plays the tax game in your favour.

And hey, every dollar you claw back is a dollar not wasted. Talk to us before you start moving money around and we’ll help make sure you don’t end up making it worse

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– The team at PAL (making accounting slightly less boring since way back when)

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Disclaimer: This article is here to give you general info only, not professional advice specific to your unique situation. While efforts are made to ensure accuracy, the content may change over time. We can’t take responsibility for any decisions based on the contents of this article, so be sure to chat with your accountant or advisor first!

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