By Tina Zawila
From 1 July 2025, the Australian Taxation Office (ATO) will no longer allow taxpayers to claim a deduction for General Interest Charge (GIC). Until now, GIC – the interest applied to overdue tax debts – was deductible against your income, softening the financial blow. This change means ATO interest will now be a non-deductible expense, increasing the true cost of falling behind on tax obligations.
For small businesses already battling cashflow pressures, this rule has serious implications. At 10.78% GIC (the current rate) these charges quickly add up – and with no deduction available, the after-tax cost is significantly higher.
So, what can you do if you already have ATO debt? One option is to consider refinancing through a commercial lender. Unlike the ATO’s GIC, the interest on a business loan is usually tax deductible, and often at a lower rate. While taking on debt should never be the first choice, it can be a strategic move to replace expensive, non-deductible ATO interest with deductible finance costs, while also regaining control over repayments.
Better still, small businesses should focus on avoiding ATO debt altogether. Some practical steps include:
- Stay on top of lodgements – lodge your BAS and tax returns on time, even if you can’t pay in full. This helps avoid penalties and shows goodwill to the ATO.
- Forecast cashflow – plan for GST, PAYG withholding, and superannuation obligations, rather than treating them as “surprises” each quarter.
- Set up a separate tax account – regularly transfer a percentage of income into a dedicated account to cover tax liabilities.
- Seek help early – if you’re struggling, talk to your accountant or the ATO about a payment plan before debts spiral.
The bottom line: after 1 July 2025, the cost of ignoring tax debts will increase. Proactive planning and timely advice are the best tools to keep your business financially healthy and avoid the sting of non-deductible ATO interest.
If you need help managing your tax debts or outstanding lodgements, please contact the professional tax advisors at UHY Haines Norton CQ Pty Ltd on 07 4972 1300.
