01/07/2025
From 1 July 2025, taxpayers will no longer be able to claim deductions for interest charges imposed by the Australian Taxation Office (ATO), following the introduction of the Treasury Laws Amendment Act 2025. The move marks the beginning of a major crackdown by the ATO on how Australians manage tax-related debt.
Previously, taxpayers could deduct interest on unpaid tax debts, including general interest charges for outstanding taxes and shortfall interest charges for underpaid tax following amended returns. For many, this was a valuable benefit that helped reduce their annual tax bill. With these deductions now off the table, both individuals and businesses will need to rethink how they handle tax debt.
The ATO’s message is clear: it does not want to act as a lender anymore. Taxpayers are being encouraged to pay off their tax debts through other financial means rather than relying on the tax office to carry the burden. This change is expected to have far-reaching consequences, particularly for the small business community.
Small Businesses Hit the Hardest
There are around 2 million small business owners across Australia, many of whom are already dealing with high operating costs, staffing shortages and economic instability. These latest changes come at a time when local businesses are already stretched thin. From international trade pressures and inflation to increasing property costs and housing stress, the financial climate is far from forgiving.
According to experts, small businesses, already more likely to carry higher levels of tax debt, will feel the biggest impact. However, the changes won’t just affect business owners. Individual taxpayers are increasingly finding themselves with ATO debts, especially those juggling multiple jobs or working side hustles.
Adding to the challenge is the current interest rate on unpaid ATO debts, sitting at an eye-watering 11.17%. This rate is compounded daily and charged monthly, meaning a $10,000 tax debt could rack up more than $1,100 in interest over the course of a year and taxpayers often don’t feel the sting until the next financial year.
The ATO has stated that the changes are about fairness, ensuring that those who pay their taxes on time are not penalised compared to those who delay. With outstanding tax debt now totalling over $100 billion, half of which is considered recoverable, the tax office is determined to claw back what it can.
Debt Consolidation and Refinancing: A Practical Alternative
While the removal of these deductions may appear to close one door, it opens another for taxpayers willing to take action. One of the most effective strategies now available is debt consolidation or refinancing with a financial institution.
By refinancing ATO debt with a bank or non-bank lender, individuals and businesses can often secure a significantly lower interest rate than the ATO’s 11.17%. This approach can dramatically reduce monthly repayments and ease financial pressure.
For example, consolidating ATO debt into a standard business or personal loan with an interest rate between 6 and 9%, or even lower depending on credit history and collateral, could cut the annual interest cost by hundreds or even thousands of dollars. The savings free up valuable cash flow that can be redirected into essential business operations, savings, or other pressing financial needs.
More importantly, refinancing encourages better financial planning. It gives taxpayers an opportunity to restructure their debts, simplify repayments, and improve their overall financial health. Business owners, in particular, should use this opportunity to review their operations, assess expenses, and set aside funds specifically for future tax obligations.
By shifting from reactive debt management to proactive financial control, individuals and businesses can avoid unnecessary interest charges, strengthen their cash flow and create more financial certainty in an unpredictable economy.
