From 1 July 2025 ATO debt changes come into effect that no longer allow general interest charges and shortfall interest charges to be eligible tax deductions. Businesses that currently have debts to the taxation department and are paying off the debts with interest charges, will no longer be able to deduct the interest as a business expense. This may be a significant development for many business owners and alternative payment arrangements with financing may be considered as a workable option.
This change to the taxation laws was announced in the 2023-2024 MYEFO – Mid-Year Economic and Fiscal Outlook. The changes have been passed by law and come into effect from the start of the next financial year. When the charge applied and when the payment is remitted, does affect the tax deductibility of the interest payment. But essentially, from 1 July, interest payments on debts with the ATO will not be a tax deduction and as such, will need to be paid from business profits.
For businesses subject to this change we may have suitable financing solutions which present more affordable ways to deal with payments to the tax department. We explain the changes which are due to come into effect and how we may assist ease the cost burden.
Details of ATO Debt Changes
How the change to how interest on debts to the ATO is treated affects different businesses depends on the timing of the charges, the type of charges and when the charges are paid. All changes start from 1 July this year.
The timing of general interest charges (GIC) and shortfall interest charges (SIC) differs. GIC are subject to daily basis charging. SIC which is the shortfall on unpaid income tax is applied in the same year that the assessment notice was served.
The year of incurring charges affects if the interest will be tax deductible. If the SIC or GIC was incurred prior to 1 July 2025, the interest is still treated as a tax deduction for this current financial year, 2024-2025 and earlier years.
Where charges in the years prior to the change are deducted from taxable income but the remittance was made later, in another financial year, the payment amount is included in the assessment for the year of the payment.
From 1 July, all new charges incurred will not be treated as a tax deduction. This includes for GIC and for SIC on late tax payments and other outstanding payments for the financial years before and after 1 July. So, if you are late submitting tax returns for earlier years, you may be subject to this change.
If your business is paying off debts to the ATO which attract not only interest but compounding interest, then you may be advised to consider your options for meeting your obligations more affordably.
Significance of ATO Debt Changes
Tax deductions are generally accepted as a major part of running a business. In general terms, many business owners have the expectation that all their costs of operating that business will be tax deductible. With the interest on tax debts now essentially fines, they are not deductible.
The scenario is that instead of being able to deduct those amounts from income to reduce payable tax, the amounts will have to come from profit. Eating away at profit margins. For very small businesses, this may be the owner’s income.
Repaying an ATO debt with interest accruing and compounding could be more significant than it appears. The real cost could be not just the interest rate charged by the ATO, but that you will be paying income tax on the monies to pay that debt. Based on our rough estimates, the real interest rate could be around 15%. There are options which we will outline.
Addressing ATO Debt Changes
Rather than continuing to pay debts with non-deductible interest charged by the ATO, business owners may consider commercial credit facilities to pay out the debt. We offer a full range of commercial credit facilities which are used for many different types of expenses that are not suited to asset acquisition secured loans. Our rates are highly competitive, and the interest is a deductible business expense.
An Unsecured Business Loan may be an ideal finance product to address a taxation debt. Pay out the obligation to the ATO and repay the loan over a term negotiated to deliver workable repayments. Flexible terms can be secured, competitive rates sourced to suit your business, and interest charges and lender fees are deductible.
Lender Overdrafts are another flexible loan product which can be used for expenditure such as tax debts. Arrangements can be made for short-term overdrafts or longer term, ongoing lines of credit. Overdrafts are sourced and structured by our brokers to meet the individual requirements of the business.
If you may be facing a debt to the ATO from 1 July with non-deductible interest charges, speak with us about the finance options we may arrange for you.
Contact Jade Finance online or by phone 1300 000 008 for options to finance ATO debts.
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.
