A new rule making outstanding tax debts more expensive to pay off has kicked in as the Australian Tax Office chases a record $50 billion in unpaid tax.

Since July, the 10.78 per cent interest rate on the ATO’s two-year payment plans is no longer tax deductible.

This means people in the red may end up paying back more. 

But, there could be a small workaround for sole traders and small businesses. 

“If they pay that debt off via a loan or an overdraft facility, the interest on that loan is still tax-deductible,” Etax accountants group marketing and communications manager Ashley Debenham said.

The ATO plans are simple, but people usually need to pay 10 per cent up front.

According to Etax accountants, if an owner took out a business loan at 10 per cent to pay a $20,000 tax debt over two years, then they would be $676 better off because the interest is tax deductible.

If sole traders and small businesses have outstanding activity statements and are not able to refinance, they could qualify for the ATO’s 12-month interest-free plan.

There are also 20 free tax clinics around the country for those on a low income and in hardship. 

In serious situations, the ATO could be asked to wipe away the interest owed.

“There is the possibility that it can be written off, but you do need to show cause for that,” Tax Clinic director Connie Vitale said.

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