Why your ATO payment plan could be costing you more than you think

ATO Interest No Longer Tax-Deductible from 1 July 2025: What Australian Businesses Need to Know 

Starting 1 July 2025, Australian businesses will no longer be able to claim tax deductions for interest charges imposed by the Australian Taxation Office (ATO) on unpaid tax debts. This change applies to both the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC), regardless of when the original tax debt was incurred.

Key Implications for Businesses 

• Increased Financial Burden: Previously, businesses could offset the cost of ATO interest charges through tax deductions. With the removal of this deductibility, the full amount of GIC and SIC will now be an out-of-pocket expense, effectively increasing the cost of carrying tax debt. 

• Impact on Existing Payment Plans: Even if a business has an existing payment arrangement with the ATO that extends beyond 1 July 2025, any interest charges accrued after this date will not be deductible. 

• Stricter ATO Compliance Measures: The ATO is adopting a more rigorous approach to debt collection, reducing leniency in granting interest and penalty remissions. This underscores the importance of timely tax payments to avoid additional non-deductible costs. 

  
  

Strategies to Mitigate the Impact

Contact us to find out how you could minimise the cost of your ATO debt.

• Settle Outstanding Tax Debts Before 1 July 2025: Paying off existing tax liabilities before the new rules take effect can help businesses avoid non-deductible interest charges. 

• Refinance ATO Debts Through Commercial Loans: Interest on commercial loans used for business purposes remains tax-deductible. Refinancing ATO debts through such loans can help maintain interest deductibility. It's crucial to ensure that the loan is clearly linked to business activities and properly documented. 

• Enhance Cash Flow Management: Implementing robust cash flow planning can help businesses meet tax obligations on time, thereby avoiding GIC and SIC charges altogether. 

The upcoming changes to the tax treatment of ATO interest charges represent a significant shift for Australian businesses. By understanding the implications and proactively managing tax debts, businesses can mitigate the financial impact and maintain healthy cash flow. 

Talk to Jor'åki Finance about ATO debt mitigation strategies.