29/05/2025
Starting 1 July 2025, significant changes to Australian tax law will impact how businesses and individuals manage outstanding tax debts. The Australian Taxation Office (ATO) will no longer allow deductions for interest charges on unpaid tax liabilities, including the General Interest Charge (GIC) and Shortfall Interest Charge (SIC). This change aims to encourage timely tax payments and reduce the use of unpaid tax as a form of short-term financing.
What Does This Mean for You?
For Businesses:
- From 1 July 2025, GIC and SIC on unpaid tax debts will no longer be deductible.
- Interest rates for GIC and SIC are currently high; for example, the GIC rate for the March 2025 quarter was 11.42%.
- The removal of deductibility increases the after-tax cost of these interest charges, making it more expensive to carry tax debt
For Individuals:
- Interest on personal tax debts has never been deductible and will continue to be non-deductible.
- The new legislation does not change the treatment of interest on personal tax debts.
Strategies to Mitigate Impact
1. Refinance ATO Debt:
- Consider refinancing your ATO debt through commercial finance arrangements.
- Interest on loans used for business purposes may be tax-deductible, potentially reducing your overall tax burden.
2. Pay Debts Before 1 July 2025:
- If possible, settle outstanding tax debts before the new rules take effect to retain deductibility for current interest charges.
3. Review Payment Plans:
- Businesses and individuals should review their current payment plans and consider adjusting them to avoid accruing non-deductible interest charges.
Take Action Now
To prepare for these changes, consider the following steps:
- Review your current tax debts and payment arrangements.
- Consult with a financial advisor or accountant to explore refinancing options.
- If possible, pay off existing tax debts before 1 July 2025.
- Stay informed about the latest ATO interest rates and legislative updates.
By taking proactive steps, you can minimise the financial impact of these changes and maintain better control over your tax liabilities.
