How the New Tax Law Affects You: ATO Interest Charges
If you’re running a small business in Australia, there’s an important tax change on the horizon that could affect your bottom line. From 1 July 2025, ATO interest charges will no longer be tax deductible for business, this shift could make managing late tax payments significantly more expensive.
This new rule is part of a wider effort to stop businesses from treating the ATO like a cheap finance option when times get tough. So, if you’ve ever delayed a tax payment thinking the interest wasn’t a big deal (because you could write it off later), this has changed!
Let’s unpack what this means and how you can get ahead of it.
What’s Actually Changing with ATO Interest Charges?
Prior to 1 July, if your business got charged interest by the ATO—for example, for paying tax late—that interest could usually be claimed as a tax deduction.
But from 1 July 2025, that benefit is gone. Under new legislation introduced by the Federal Government, businesses will no longer be able to claim ATO interest charges as a deduction.
The message is clear: the ATO doesn’t want to be your backup plan for cash flow anymore.
Why This Matters (Especially If You’re a Small Business)
For many small business owners, tax time can already feel like walking a tightrope by needing to balance bills, wages, and BAS lodgements. Being able to claim interest on tax debts was one of those little things that helped soften the blow when cash flow got tight.
Here’s a quick example:
Let’s say your business racks up $10,000 in ATO interest. At the current 25% company tax rate, that was $2,500 in tax you wouldn’t have to pay. But post July 2025, that $2,500 saving is gone. You’ll pay the full interest and get zero tax relief on it.
In other words, the true cost of late tax payments is about to go up—and that can eat into your profits if you’re not careful.
Time to Rethink the ATO as a Finance Option
For years, some businesses treated ATO payment plans as a kind of unofficial loan. It wasn’t ideal, but it was cheaper than getting finance from the bank.
That strategy is now risky. Without the deduction, ATO interest becomes more expensive, and suddenly it might be cheaper to finance your tax debt elsewhere.
Some alternatives to consider include:
- Short-term business loans
- Overdraft facilities
- Invoice financing
- Tax debt finance through specialist brokers
In many cases, the effective cost of borrowing from a lender could now be lower than paying interest to the ATO—especially when you factor in flexibility, repayment terms, and potential tax deductibility.
Are Individuals Affected by This?
Not really. The rule change is focused on business taxpayers. If you’re an individual managing your own tax matters (such as a sole trader or investor), you can still claim ATO interest charges under certain conditions. You can find more details directly on the ATO website here: Interest charged by the ATO – Deductions.
What Should You Do About This Change?
This isn’t one of those changes you can afford to deal with last minute. Getting ahead of it now could save you thousands—and a lot of unnecessary stress.
1. Review Your Current ATO Debt
If you’ve got an outstanding balance, take a good look at how long it’s been sitting there and what interest is building up. Paying it off before the new rules kick in could be a smart move.
2. Look Into Other Finance Options
It’s worth having a chat with your accountant or finance broker about alternatives. There are now dedicated tax debt finance options on the market that might be more affordable than leaving it with the ATO.
3. Tidy Up Your Cash Flow
When tax payments start feeling like an emergency, it usually comes back to cash flow. Strengthen your invoicing, follow up on late payers, and budget ahead for upcoming BAS or income tax instalments.
4. Talk to a Tax Professional
The best decisions are informed ones. A business accountant can help you model out your options, forecast the impact, and set up a game plan that keeps your business running smoothly.
Stay Ahead with Acctivate Business Accountants
This isn’t the most exciting change on your radar, but it will make a difference to your finances if you’re not ready for it.
The good news? You’ve got time to act.
At Acctivate Business Accountants, we help Australian small businesses navigate tax rules like this every day. Whether you’ve already got a tax debt or just want to stay on top of your obligations, we’ll guide you through your options with straightforward advice and zero jargon.
Not sure what this change means for your business? Let’s talk. We’re here to help you make confident financial decisions at all times!
Need help getting ahead of changes with ATO interest charges?
Get in touch with the team at Acctivate Business Accountants today.