ATO’s upcoming changes to treatment of tax debt interest charges

The Australian Tax Office is implementing an important change that will affect businesses which have tax debts.

From 1 July 2025, businesses will no longer be able to claim a tax deduction for ATO interest charges – this includes both the General Interest Charge (GIC) and Shortfall Interest Charge (SIC).

This change to the treatment of interest charges on tax debt means:

• The cost of unpaid tax debt will increase – interest will no longer be tax-deductible.
• SMEs that have used ATO payment plans as a short-term finance option will be particularly affected.
• Brokers working with small business clients should be aware of this change and the impact on their clients’ cash flow and financing decisions.

Given there’s about six weeks until the removal of tax deductions on interest charges takes effect, the MFAA recommends our members and their clients who run small businesses to clear any ATO debts if they’re able to before 1 July 2025.

It’s also a good idea to reassess any payment plans that extend beyond the 1 July date.

Members and their clients should explore other funding options where interest is still deductible and have a discussion with your tax accountant sooner rather than later.

You can find more information on the  changes here: Denying deductions for ATO interest charges | Australian Taxation Office

Planning ahead is essential so that you are prepared for this change.

Useful ATO resources for you and your small business clients

The ATO also runs a series of masterclass webinars to help strengthen SME owners’ business knowledge. The topics include record keeping, claiming small business tax educations, cash flow, GST, and hiring and paying workers.

For more details and to register, go to: https://smallbusiness.taxsuperandyou.gov.au/