New laws remove tax deductibility of interest on ATO Debt.
The government has introduced new laws to reduce business reliance on the ATO as a short term funder and is changing the rules around the tax deductibility of interest to ATO related debts.
From 1 July 2025, businesses and individuals will no longer be able to claim a tax deduction for interest charges imposed by the Australian Taxation Office (ATO).
This change applies to two main types of ATO interest:
- General Interest Charge (GIC): This is interest the ATO charges when you pay your tax late. It is calculated daily on the amount you owe.
- Shortfall Interest Charge (SIC): This is an interest charge if the ATO finds you have underpaid your tax after reviewing your tax return. It applies from the date the tax was originally due until you pay the shortfall.
The new rules apply even if the interest relates to earlier tax years or is part of a payment plan that continues past 1 July 2025.
What Options should be considered?
- Pay Tax Debts Promptly:
Avoiding ATO interest charges is now more important than ever. Planning to be able to pay your tax on time will help you avoid extra costs that you can no longer claim back. - Review Payment Plans:
If you have a payment plan with the ATO that extends beyond 1 July 2025, be aware that interest charged after this date will not be deductible. Consider paying off your debt sooner if possible. - Consider Refinancing:
If cash flow is tight, refinancing your business loans may be a better option than relying on the ATO.
