Will a lender pay the ATO directly at settlement?

Direct payment is standard practice, and it works in the borrower’s favour as much as the lender’s. There is no gap between funds arriving and the debt being cleared, and no question later about where the money went.

How it works

1. Payout figure. The borrower or their tax agent obtains the current balance of each relevant ATO account - integrated client account, income tax account, any superannuation guarantee charge account. General interest charge accrues daily, so the figure is calculated to the expected settlement date with a small buffer.
2. Payment details. Each ATO account has a payment reference number. Payment is made by BPAY or electronic transfer quoting that number, so the money is applied to the right account.
3. Settlement. The lender’s solicitor disburses the loan: the ATO payment first, then fees and costs, then the balance to the borrower or to other payees named in the loan.
4. Confirmation. A receipt is issued, and the payment shows on the ATO account within a few business days.

What to check afterwards

Log in to online services or ask your tax agent to confirm every account shows nil. Small residual amounts of interest are common where the figure was calculated a few days early. Pay them immediately, because a trivial unpaid balance can keep a garnishee or a disclosure process technically alive. Ask the ATO to confirm in writing that any garnishee has been withdrawn and that any credit reporting disclosure will be removed.

More than one account or entity

Tax debts are often spread across a company, a trust and a director’s personal account, each with a different reference. The loan documents should list each payee and amount. Where the borrower is a trust paying a related company’s debt, the structure needs thought before settlement - see can a trust borrow to pay a company’s tax debt.

Director penalty notices

Timing is everything with a DPN. Personal liability for a non-lockdown DPN is avoided only if the company’s debt is paid, or another permitted step taken, within 21 days of the date on the notice. Payment must be received by the ATO within the period, so settlement should be scheduled with days to spare, not on day 21. See Director Penalty Notice funding.

Keep the paper

Retain the loan disbursement statement and the ATO receipt. Your accountant will need them for the tax treatment of the interest, and an incoming bank will want them as evidence the debt is gone when the loan is later refinanced.