ATO vs IRD: how tax debt works on each side of the Tasman

Two countries, two tax offices, one very common worry: “I’ve fallen behind with tax, and I need to know what happens next.” Mr hears this from owners on both sides of the Tasman, so here’s the side-by-side version. The Australian Taxation Office (ATO) and New Zealand’s Inland Revenue (IRD) are more alike than different, but the differences matter when you’re planning cash flow or talking to a lender.

How do the ATO and IRD compare at a glance?

Question	Australia (ATO)	New Zealand (IRD)
What’s the repayment deal called?	Payment plan	Instalment arrangement
Can I set it up myself online?	Yes, for debts of $200,000 or less	Yes, through myIR
What does late money cost?	General interest charge (GIC), compounding daily	Late payment penalties plus use-of-money interest
Is that cost deductible?	No, for GIC that accrued after 30 June 2025	Interest on underpaid tax is deductible for business purposes
Can it reach my credit file?	Yes, if $100,000 or more has sat unpaid past 90 days and you’re not working with the ATO	Yes: over $150,000 overdue 90 days, among other criteria

The table is the headline. The sections below are the “what does that mean for my business” part.

What happens when you can’t pay on time?

In Australia, the ATO adds the general interest charge to anything unpaid. The ATO says GIC is worked out daily on a compounding basis, and the rate is reviewed every quarter. A payment plan doesn’t switch that interest off, but it does show the ATO you’re dealing with it, which tends to keep firmer action at bay. If the business owes $200,000 or under, the plan can usually be arranged online, no phone call needed.

In New Zealand, IRD uses a staged penalty system. Under its guidance, an unpaid amount picks up 1% straight after the due date, another 4% a week later, and on some tax types a further charge every month (that monthly penalty doesn’t apply to GST or income tax, including provisional tax). On top of penalties, IRD charges use-of-money interest from the day after the original due date. The big lever is an agreed instalment arrangement: IRD says that keeping to one means you’ll pay fewer penalties. It also warns that regular payments made without an agreed arrangement may not stop full penalties and interest from applying.

Mr’s tip for both sides: an informal “I’ll chip away at it” plan is the worst of both worlds. Make the arrangement official, then keep to it.

Is the cost of tax debt deductible?

This is one of the sharpest differences right now.

• Australia: the ATO confirms GIC that accrues from 1 July 2025 onwards is no longer a deductible expense, though GIC that built up before then can still be claimed in the year it arose. In plain terms, carrying a tax debt in Australia got more expensive after tax, because the interest no longer reduces your taxable income.
• New Zealand: IRD says interest you pay on underpaid tax is deductible for business purposes and can be claimed as an expense on your income tax return.

That gap changes the maths when an owner weighs “stay on a tax plan” against “refinance the tax debt”. In Australia, a business loan used to clear an ATO debt may carry interest that is deductible as a business expense, while the GIC it replaces is not. Your accountant can confirm the numbers for your own situation, and you can read more on our explainer about what tax time looks like in each country.

Can tax debt end up on your credit file?

Yes, on both sides, and lenders notice.

The ATO can tell credit reporting bureaus about a business’s tax debt once every box is ticked: the business holds an ABN (and isn’t an excluded entity), $100,000 or more has stayed unpaid for longer than 90 days, and nobody has been working with the ATO to sort it out. If you’re already engaged (for example, on a payment plan you’re keeping), the ATO won’t proceed.

IRD shares information with credit reporting agencies about GST, PAYE or income tax debts over $150,000 that are 90 days overdue, or debts unpaid for 12 months or more that equal at least 30% of assessable income. From 1 April 2026, IRD says two automated overdue notices (including ones in myIR) now count as reasonable effort to collect, and the notice of intent can arrive in myIR or by standard post rather than being served on every director.

The common thread: engaging early keeps your options open. Silence is what turns a tax problem into a credit problem. If your credit file is already marked, see our side-by-side on credit reports in Australia and New Zealand.

Want a person to look at your tax situation? Mr’s friends on each country site consider ATO and IRD debt case by case, and asking doesn’t touch your credit file. Pick your country and start a 60-second enquiry.

How do lenders look at ATO or IRD debt?

Lenders in both countries ask the same handful of questions:

1. How big is it, compared with the business? A tax bill that equals a month of turnover is a different story from one that equals a year.
2. Is there an agreed arrangement, and are you keeping to it? A plan with a clean payment history tells a lender you’re organised under pressure.
3. Why did it happen? Fast growth, a lumpy contract, a bad debtor or a one-off shock all read differently from a pattern of ignoring the tax office.
4. Is there property security? Property-secured lending (anywhere between $20,000 and $5,000,000) gives a lender comfort that can outweigh a messy tax history. Without property, unsecured funding, which usually sits between $5,000 and $500,000, leans harder on bank statements and turnover.
5. What will the loan actually fix? Clearing the tax debt in full, so the business has one predictable repayment instead of penalties and interest, is a purpose lenders understand.

If you’d like the deeper single-country versions, the Australian site answers whether an ATO debt rules out a business loan and the New Zealand site covers borrowing with an IRD debt.

Illustrative example: one owner, two tax offices

Illustrative only, not a real business. A landscaping supply company trades from Brisbane and has a small branch in Hamilton. A slow winter leaves it behind on its Australian BAS and its New Zealand GST at the same time. The owner sets up an ATO payment plan online for the Australian side and applies for an IRD instalment arrangement in myIR for the New Zealand side. Both arrangements stay current. Six months later, when the owner wants to refinance, each country’s lender sees an owner who dealt with the problem early and kept their word, which is exactly the story you want in front of an assessor.

What should you do this week?

• Log in to ATO online services or myIR and check the real balance, including interest and penalties.
• Set up the formal arrangement in whichever country (or both) you owe.
• Keep every payment on the plan, even if it’s small.
• Lodge any outstanding returns: lenders and tax offices both struggle with missing returns more than with debt.
• Talk to your accountant about whether refinancing the debt makes sense after tax, especially in Australia since the GIC change.

Ready to see what’s possible?

Owing the ATO, IRD or both doesn’t make you unbankable. Here’s what Mr’s people promise before you say a word: starting an enquiry leaves your credit file untouched, your situation is looked at by one team in your own country instead of being auctioned to every lender with an inbox, and a human picks up the phone. Give them the true balance and the details of any arrangement, and the reply will be worth having. Choose your side of the Tasman and see if you qualify.