ATO Tightens Rules on Interest Deductions

From 1 July 2025, the Australian Taxation Office (ATO) introduced an important change that affects many small businesses: taxpayers will no longer be able to claim deductions for ATO General Interest charges (GIC).

This move signals a shift in how the ATO balances support for compliant businesses with stricter measures for those falling behind. While the ATO continues to provide flexible options for businesses doing the right thing, it is clear that penalties will now have a sharper bite for those who fail to engage with their obligations.

Why This Matters for Small Businesses

For many small businesses, ATO debt is a common issue. In fact, almost all companies we assist are carrying some level of ATO debt, and for many, that debt has grown out of hand due to compounding interest charges and penalties.

Until now, the sting of ATO interest charges has been somewhat softened by the fact that they were tax-deductible. From July 2025 however, businesses won’t be able to offset them through deductions at tax time.

What to Do If You Have ATO Debt

If you currently have an outstanding ATO debt, there are some proactive steps you can take:

1.        Set up a payment plan – The ATO is usually open to negotiating manageable payment arrangements if you make early contact and show a genuine intention to repay.

2.        Apply for interest remission –To be successful, you will need to provide valid reasons and supporting documentation. 

3.        Seek professional help – Specialist advisers and insolvency professionals can guide you through the process or negotiating with the ATO.

Failing to deal with tax debt will only become more expensive. By contrast, businesses that engage early, seek help when needed, and take advantage of remission opportunities can reduce costs and stay on track.

For more information, or professional advice in dealing with ATO debt, contact the experienced team at Smith Hancock on ph: 02 9689 2266.