Check if Your Business Is at Risk
Does your business currently carry an outstanding ATO debt or rely on payment plans to manage tax obligations? If so, the new rules that came into effect on 1 July 2025 could significantly increase your costs.
From this date, General Interest Charge (GIC) and Shortfall Interest Charge (SIC) imposed by the ATO are no longer tax-deductible. In other words, the interest you pay on overdue tax is now a straight cost to your business, with no offsetting benefit at tax time.
What Changed on 1 July 2025
- Non-deductibility applies to all new assessments or amended assessments issued on or after 1 July 2025.
- Interest accrued before 1 July 2025 remains deductible, even if the debt continues beyond that date.
- GIC and SIC charged from 1 July 2025 onwards are non-deductible, regardless of when the underlying debt arose.
This change reflects the government’s intention to treat tax interest as a penalty rather than a financing cost. For businesses, it removes what was once a small but useful tax offset.
Why This Matters Now?
Now that the rule has been in place for a few months, businesses are beginning to feel its impact. If you have an ATO debt, BAS arrears, or a repayment arrangement, you may notice higher effective costs because you can no longer deduct interest against your income.
This makes it critical, as we enter the second quarter of FY2025–26, to:
- Review outstanding ATO debts – understand what portion of interest is accruing and how it impacts your cash flow.
- Reassess repayment plans – what seemed manageable last year may now carry a heavier cost.
- Update financial forecasts – ensure your budgeting reflects interest as a non-deductible expense.
- Consider alternatives – external financing (e.g., bank overdrafts or short-term loans) may, in some cases, be cheaper overall than carrying non-deductible ATO interest.
Practical Example
- Pre–1 July 2025: A $20,000 tax shortfall with GIC of $1,000 could mean that $1,000 was deductible, reducing your taxable income.
- Post–1 July 2025: The same $1,000 interest charge is no longer deductible — it’s a pure after-tax cost.
For SMEs operating on thin margins, this change makes overdue tax debts significantly more expensive to carry.
What Businesses Should Do Now
- Check your ATO account balance and payment arrangements.
- Prioritise clearing outstanding debts sooner rather than later to reduce exposure to non-deductible charges.
- Talk to your accountant or advisor about whether refinancing tax debt through other facilities may be more cost-effective.
- Review compliance processes to avoid new GIC or SIC charges arising in future periods.
How Supervision Can Help
At Supervision, we work with businesses to stay ahead of regulatory changes and minimise unnecessary costs. Our team can:
- Assess your current ATO debt exposure and model the true cost under the new rules.
- Explore repayment and financing strategies to ease the cash flow burden.
- Strengthen compliance processes so interest penalties are avoided altogether.
Don’t let non-deductible interest eat into your profitability. Contact Supervision today to review your tax position and plan smarter for FY2025–26.
