Navigating the Tax Landscape: Interest on ATO debts will no longer be deductible

Starting July 1, 2025, small business owners in Australia will face a significant change as the Australian Tax Office (ATO) ends the practice of allowing interest deductions on tax debts¹. This adjustment, while not yet law, pertains to general interest charges (GIC) and shortfall interest charges (SIC) and may notably increase the financial challenges for businesses, especially in an era where many are still grappling with the economic repercussions of COVID-19.

Previously, businesses could deduct interest paid on tax debts from their taxable income, softening the financial hit of such debts. Current data from Creditor Watch underscores the urgency, revealing that the outstanding ATO debt now totals approximately $52 billion, with $34bn of this figure owed by SMEs².

The ATO’s tightened enforcement measures, including reporting tax debts to credit bureaus and issuing garnishee orders, emphasise the need for proactive financial planning. Small businesses should consult with financial advisors to navigate these changes effectively. Expert guidance can help optimise tax strategies and ensure compliance, avoiding detrimental impacts on credit scores and business operations.

Understanding the nuances of this new tax policy will be crucial for small businesses and finance brokers alike. Preparation and early adjustment to financial planning can mitigate the potential adverse effects of these changes. As the landscape evolves, staying informed and seeking professional advice will be more crucial than ever.

To adapt, businesses could secure a loan to cover the debt. SME loans can provide the critical capital required to clear tax debts before the interests become more burdensome. Finance brokers will play a key role, guiding business owners through various financing options to find the most viable solution tailored to their needs.

While the end of interest deductions for tax debts presents a new challenge, with strategic planning and professional guidance, small businesses can continue to thrive. Engaging with knowledgeable finance brokers and advisors will be essential in navigating this complex tax environment effectively.

Please note: This is general information only and does not consider your personal circumstances. Please seek professional advice before making any decisions or transactions.

1. ATO.gov.au – Deny deductions for ATO interest charges.
2. MPA Magazine – Tax debt forces closure of thousands of businesses