▲ Policy Interpretation
According to the latest ATO regulations, from July 1, 2025, all ordinary interest charges (General Interest Charge, GIC) and short-term interest charges (Short-term Interest Charge, SIC) resulting from late tax payments will no longer be recognized as tax-deductible expenses.
This means:
• Overdue interest expenses will become purely after-tax costs; businesses can no longer reduce their tax burden through deductions.
• The change applies to overdue interest on company income tax, GST, PAYG withholding, and other tax types.
• Overdue interest assessed (and accounted for) before July 1, 2025, remains deductible, but all interest accrued on or after that date is non-deductible.
Currently, the ATO’s GIC rate stands at a high 11.17%, compounded daily, causing interest costs to accumulate rapidly. Businesses failing to pay taxes on time will face increased financial pressure.
▲ Impact Analysis on SMEs
Australia has around 2.6 million small businesses, many of which encounter overdue tax payments due to restricted cash flow. This new rule aims to strengthen tax compliance and recover up to AUD 45 billion in unpaid taxes but also poses several challenges:
1. Significant Increase in Tax Costs
With overdue interest no longer deductible, what used to be partially offset through tax relief now becomes a full after-tax expense. The compounded interest rate exceeding 11% rapidly increases the effective financing cost for small businesses.
2. Heightened Credit Risk and Financing Difficulties
The ATO intensifies monitoring of businesses with overdue amounts exceeding AUD 100,000 without proactive communication. Overdue records will be reported to credit agencies, potentially harming business creditworthiness and access to financing.
3. More Complex Annual Financial and Tax Planning
Businesses must differentiate interest expenses incurred before and after the assessment date to properly plan financial statements and tax returns, avoiding unexpected non-deductible tax burdens and increasing planning complexity.
▲ Practical Strategies for Businesses
In response to the new regulation, SMEs should take proactive steps to mitigate risks. Recommendations include:
1. Maximize Use of the Pre-July 1, 2025 Declaration Window
Make every effort to file and pay taxes by June 30, 2025, to ensure overdue interest remains deductible. Timely filing and payment are key to “locking in” tax benefits.
2. Proactively Contact the ATO to Request Payment Plans
If full payment is not possible, promptly negotiate with the ATO to establish installment arrangements at lower interest rates to prevent uncontrolled accumulation of non-deductible interest.
3. Optimize Cash Flow and Budget Management
Set up dedicated tax accounts and plan ahead for periodic tax obligations such as GST and PAYG. When necessary, consider bank loans or specialized tax loans to replace overdue ATO debt, allowing interest deductions to reduce overall costs.
4. Engage Professional Tax Advisors for Regular Review
Registered tax agents or accountants can help accurately assess overdue risks, design compliant tax planning, and intervene early to address potential tax issues.
▲ Conclusion
The new “no deduction for overdue interest” rule effective July 1, 2025, is a key government measure to promote tax compliance and enhance tax collection. While this policy technically adjusts tax treatment, it will directly impact business costs and cash flow.
We recommend all businesses, especially SMEs, to:
• Closely monitor the policy implementation timeline and adjust filing and payment plans accordingly;
• Plan funds in advance to avoid late tax payments;
• Proactively communicate with the ATO to seek appropriate installment and remission options;
• Rely on professional teams to ensure compliance and effective planning.
If you would like to learn more about personalized tax planning or business risk management advice, please contact our professional team. We provide comprehensive and robust tax compliance and optimization support to help your business grow steadily.
