New Tax Rule Alert: From July 1, 2025 — ATO Interest & Tax Deductions Changes
Australian small businesses need to act fast: a major change is coming that will affect how you manage tax debt and cash flow.
1. Interest on ATO Tax Debt Is No Longer Tax-Deductible
Starting July 1, 2025, businesses will no longer be able to deduct interest charged on tax debts from their taxable income.
Previously, interest (such as the ATO’s General Interest Charge of ~11.17% p.a., compounded daily) could be claimed as an expense—but this deduction will be removed entirely
What it means for you:
-
Carrying a tax debt now becomes much more expensive.
-
Businesses should prioritise clearing tax debts quickly or refinancing with lower-cost alternatives.
-
Seek advice early to avoid escalating interest and penalty costs.
2. Why This Change is Significant
Approximately 2.6 million small businesses are affected—many already owe money to the ATO. Removing the deduction will sharply increase the net cost of tax arrears.
The ATO has begun reporting unpaid tax debts over $100,000 to credit agencies if businesses fail to respond within two months—putting directors’ personal credit at risk as well.
3. ATO’s Top Compliance Priorities for 2025
The ATO is ramping up enforcement using advanced data analytics and AI tools. Key focus areas include:
-
Under-reported cash income, especially in hospitality, trades, and the gig economy
-
Overclaimed expenses, including private or inflated claims without proper records
-
Late super contributions, with penalties affecting directors
-
GST non-compliance, especially from mis-registration or invalid GST credits
4. Recommended Actions for Business Owners
✅ Prioritise tax payments
If you owe the ATO, now is the time to act—move fast to clear debts or access alternative financing with lower interest rates.
✅ Improve record-keeping
Ensure your accounting is up to date and backed by software like Xero or QuickBooks. Keep receipts, bank statements, and logbooks well-organised
✅ Meet super and PAYG obligations
Pay superannuation on time, and ensure your Single Touch Payroll is finalised correctly. Directors may be held personally liable otherwise
✅ Review GST compliance
Only claim GST credits for valid business expenses and ensure you’re registered correctly if turnover exceeds $75,000
✅ Aim for monthly BAS reporting
Switching from quarterly to monthly BAS reporting can improve cash flow transparency and help avoid surprises at EOFY
5. Tax Planning Tips in the New Landscape
-
Forecast ahead: Set aside funds regularly to cover tax liabilities and avoid surprises.
-
Apply small business concessions where you qualify—such as lower company tax rates or CGT benefits.
-
Consider restructuring if your current business model results in frequent debts or cash flow issues.
6. How Taxation House Can Support You
At Taxation House, we help small businesses navigate changes in tax law and protect against compliance risks. We offer:
-
Debt repayment planning and refinancing advice
-
Review of your bookkeeping systems
-
GST, PAYG, super compliance audits
-
Lodgement reminders and BAS management
-
Structuring & tax strategy reviews
📞 Contact us now to arrange a no-charge initial consultation and safeguard your business from rising tax costs.
FAQs
Q: What if I still owe tax after July 1, 2025?
A: The interest will still apply—but won’t be deductible.
Q: Can I get an interest remission?
A: Only in very limited circumstances. Talk to your tax agent immediately.
Q: Should I switch to monthly BAS reporting?
A: It’s not required, but it can help smooth out liabilities and improve record accuracy.
