Changes to ATO debt interest charges come into effect on 1 July 2025 with these interest charges no longer eligible as tax deductions for business. The interest charged on debts to the taxation department for general interest charges (GIC) and shortfall interest charges (SIC) now treated as a fine or a penalty, not a business cost. With paying these charges now coming straight off the bottom line, businesses may consider other loan options which offer tax deductible interest.
The change was included in the Federal Government’s 2023/24 Mid-Year Economic and Fiscal Outlook (MYEFO) and starts on 1 July 2025. The law has been amended to deny deductions for interest charges by the ATO which are incurred on or after 1 July 2025. In short, any general or shortfall interest rates are no longer eligible tax deductions from the start of the next financial year.
For operators making these payments and subject to interest charges, commercial financing options may offer an affordable and workable solution. We cover off on the detail of this change and the options we offer.
Changes to ATO Debt Interest – Overview
The change to the tax deductibility of interest on ATO debts starts on 1 July, but how it effects a business may depend on when the charge was incurred and the type of charge. For example, general interest charges, known as GIC, is charged on a daily basis. Shortfall interest charges, which is a charge on a shortfall of unpaid income tax known as SIC, is applied in the year that the notice of assessment is served.
The year the charges are incurred will affect the tax deductibility of the interest. Where GIC or SIC has been incurred before the date the change comes into effect – 1 July this year, the deductibility status does not change. Interest charges on those payments will still be deductible for the 2024/25 financial year and for earlier financial years.
Note that if the charges for these years are deducted in those years but the payment remitted later, the amount paid needs to be included in the income assessment for the financial year in which it was paid.
Charges incurred on or after the date of the change to the law, 1 July 2025, are not tax deductible. This covers both SIC and GIC on outstanding payments and for late tax payments for the years after and before 1 July 2025.
This is a major change to tax law and depending on the amounts involved, may be a major issue for business owners to consider.
What Changes to ATO Debt Interest Mean for You
The impact on different businesses will depend on the amounts involved and their capacity to absorb non-deductible expenses. But essentially, the interest you are paying on your outstanding debts to the tax department are no longer a cost to your business. They are a penalty.
Those interest payments, rather than being deducted from taxable income to reduce tax payable, are now coming straight out of profit. So, income will need to be generated to cover the payments, and tax will paid on that income without the usual deduction to balance out the situation.
The real cost of paying off a tax debt with interest could be a lot larger than realised. And it will increase with compound interest as is applied by the ATO. As a rough guide, the cost of repaying that debt could be more than 15%. Charges similar to credit card interest.
Time for a rethink? Time to talk to us about how we may assist you.
Loan Solutions for ATO Debt
So what solutions are available to address these payments which are no longer treated as tax deductions? Commercial loans are available to cover a wide range of non-asset business expenses. These include Unsecured Commercial Loans and Lender Overdrafts. Both may offer flexible terms and highly competitive interest rates.
The rates we can achieve may be much lower than those applied by the tax department and interest on business loans is treated as a tax deduction.
An Unsecured Business Loan is a credit facility where the purpose of the loan is not used as collateral for the loan, such as happens with equipment financing. With no collateral, the interest rate is higher than for secured loans. But where a wholly owned asset is provided as collateral for an unsecured loan, a lower rate may be achieved. Terms are negotiated to best deliver a workable fixed repayment schedule. Rates may be fixed or variable.
An Overdraft is a highly flexible credit facility used by businesses for many purposes. While rates are higher than for some other credit facilities, this option provides flexibility to pay off the loan as income permits. The debt to the tax department and the interest, can be repaid as you can afford it – more some months, less some months.
Whichever credit option is the most suitable for an individual business, our lower rates and tax- deductible income may make these extremely affordable solutions. To work up estimates to compare, use our calculator and speak with one of our brokers to structure a solution to suit your specific objectives.
Speak with Jade Equipment Finance on 1300 000 003 to discuss loan options to address the upcoming changes to ATO debt interest deductibility.
DISCLAIMER: IF MISINTERPRETATIONS, MISREPRESENTATION OR ERRORS EXIST IN THIS ARTICLE, NO LIABILITY IS ACCEPTED. THE INFORMATION IS PROVIDED ONLY FOR GENERAL PURPOSES AND NOT IN ANY MANNER INTENDED AS THE ONLY SOURCE FOR MAKING FINANCIAL DECISIONS. THOSE THAT CONSIDER THEY REQUIRE ADDITIONAL GUIDANCE OR ADVICE SHOULD REFER TO AN INDEPENDENT FINANCIAL ADVISOR.
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