Many small business owners know that the ATO may charge interest when tax is paid late or when a shortfall arises after an amendment. In the past, some business owners treated ATO interest as a cost that could potentially be claimed as a deduction, reducing the after-tax impact.
What changed on 1 July 2025
That position has now changed.
From 1 July 2025, any General Interest Charge (GIC) or Shortfall Interest Charge (SIC) incurred on or after that date is no longer deductible for income tax purposes. This applies even if the underlying tax debt relates to an earlier income year. In practical terms, if the interest arises on or after 1 July 2025, it should not be treated as a tax-deductible expense.
Why this rule change matters
This change matters because it increases the real cost of tax debt.
For small businesses, overdue BAS, unpaid GST, PAYG withholding, income tax debts and amended assessments can already create cash flow pressure. If interest is added on top, and that interest is no longer deductible, the cost becomes more direct and more painful.
The most common issue we see is not always a lack of income. It is often a lack of tax cash flow planning. GST collected from customers gets used for stock, wages, rent or general operating expenses. PAYG withholding is not set aside. Estimated income tax is not planned for. By the time a BAS or tax bill arrives, the money has already been spent.
The new rule makes early action more important.
If your business is struggling to pay tax on time, it is usually better to deal with the issue early rather than waiting for the debt to grow. A practical review may include checking your ATO account, reviewing outstanding BAS lodgements, preparing a short-term cash flow forecast, and considering whether a payment arrangement may be appropriate.
Better tax cash flow habits
Business owners should also build better habits around tax cash flow:
- Set aside GST and PAYG withholding each BAS cycle.
- Do not treat GST collected from customers as business profit.
- Review upcoming tax obligations before they become overdue.
- Speak to your accountant early if you cannot pay on time.
The key point is simple: ATO interest is now more expensive than many business owners realise. Good tax management is not just about finding deductions at year end. It is about lodging on time, planning cash flow, and preventing avoidable costs before they arise.
If your business currently has ATO debt, delayed BAS lodgements or pressure around GST, PAYG withholding or income tax payments, it is worth reviewing the position as soon as possible.
