One of the most significant tax changes affecting small business owners from 1 July 2025 is the removal of the tax deductibility on ATO interest charges for outstanding tax debts.
This change applies to the General Interest Charge (GIC), which the ATO applies to overdue tax balances. Prior to 30th June 2025, the interest paid on these debts was able to be claimed as a tax deduction, reducing the effective cost to the business, however from 1st July 2025, that will no longer be the case.
Why It Matters
The financial impact of this change could be considerable. ATO interest rates are already higher than standard bank lending rates. Removing the deductibility means businesses will not only pay more in nominal terms, but they will also lose the offset that previously softened the blow come tax time.
To illustrate:
- A $50,000 overdue tax debt with an interest rate of 11% results in $5,500 in annual interest
- Currently, this interest is tax-deductible, which can reduce the cost to around $3,850 depending on your tax bracket
- From 1 July 2025, the entire $5,500 becomes a non-deductible expense
This will possibly make ATO debt one of the most expensive forms of finance any business carries.
What Now?
If your business currently has a tax debt or is using an ATO payment plan, now is the time to understand how these changes might affect you.
PTP clients with outstanding ATO debt are encouraged to contact their adviser to discuss their current position and what these changes may mean for their business.
Need Support?
Our team is here to help you navigate this change. If you’re unsure how it applies to your situation, or you’d like to review your tax position ahead of the new financial year, please get in touch with your PTP adviser.
Planning early could make a meaningful difference in how your business is impacted.
