From 1 July 2025, the rules around ATO interest charges[1] are changing — and it could seriously cost your clients.
For years, businesses have had a buffer when it came to overdue tax payments: the sting of high ATO interest charges was softened by their tax deductibility. But not anymore.
Under new legislation, interest charges from the ATO will no longer be tax deductible. That means small businesses with outstanding tax debts could soon be paying punishing interest rates with zero tax relief.
“What used to be a tax-deductible inconvenience could soon become a crippling cash flow crisis.”
And that’s where you, as their broker, can make a real difference.
What’s changing?
Right now, businesses that fall behind on their tax obligations may face two types of interest charges[2]:
- General Interest Charge (GIC): Applied to unpaid tax debts. Calculated daily. Compounding[3]. Currently at 11.17%[4].
- Shortfall Interest Charge (SIC): Applied when a tax return is amended, and more tax is owed[5]. Currently at 7.17%[6].
So, how can both apply? That’s because the ATO gives businesses 21 days to pay any extra tax and the SIC after issuing the amended assessment[7].
If that payment isn’t made in full within that timeframe, the GIC kicks in automatically —compounding daily on the unpaid tax plus the SIC — with combined interest charges topping 18% per annum, every day, until the debit is cleared.
“From July 2025, the ATO will still charge interest — but your clients won’t be able to claim it. That’s a game changer.”
That’s a painful double whammy of high-interest charges.
Until now, businesses could claim those charges as a tax deduction — softening the blow. But from 1 July 2025, that safety net disappears. No deductions. No relief. Just extra cost.
What it means for small businesses
Let’s say your client owes $50,000 to the ATO and doesn’t address it until well after the new rules kick in. They could be paying close to $9,000 a year in non-deductible interest alone — with no tax offset to ease the blow.
For many small businesses already juggling cash flow pressures, that’s enough to tip the balance from tight to untenable.
“Many small businesses won’t see this coming. That’s why your role as a broker is more critical than ever.”
And the ATO isn’t mucking around. Since late 2023, as part of the federal government’s 2023-24 Mid-Year Economic and Fiscal Outlook, they’ve ramped up debt recovery and announced that income tax deductions for ATO interest charges would be denied from 1 July 2025[8].
Where brokers can step in
Your clients might not know this change is coming — or understand the real impact.
Now is the time to:
1. Check in with your clients about any ATO debts and the changes happening.
2. Explore solutions that could help clients consolidate or clear ATO debt before the new rules bite.
3. Encourage early action — particularly for those with repayment plans extending beyond 1 July 2025.
“No deductions. No relief. Just extra cost — and that’s a message your clients need to hear now.”
“This is a real risk to cash flow and profitability,” says Cameron Poolman, CEO of OnDeck Australia. “Even a short delay in paying the ATO could cost thousands. The message to brokers and small business owners is simple: act now.”
Need help navigating ATO debt?
The ATO offers support options for businesses facing financial difficulty — including payment arrangements and advice. Brokers can refer their clients here: ATO Tax Support for Businesses
Helping your clients now could save them a big financial headache later.
[1] https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/deny-deductions-for-ato-interest-charges
[2] https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/deny-deductions-for-ato-interest-charges
[3] https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/interest-we-charge/general-interest-charge
[4] https://www.ato.gov.au/tax-rates-and-codes/general-interest-charge-rates#ato-QuarterlyGICrates
[5] https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/interest-we-charge/shortfall-interest-charge
[6] https://www.ato.gov.au/tax-rates-and-codes/shortfall-interest-charge-rates
[7] https://www.ato.gov.au/individuals-and-families/paying-the-ato/interest-and-penalties/interest-we-charge/shortfall-interest-charge
[8] https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/deny-deductions-for-ato-interest-charges
* Important information: OnDeck does not provide tax, legal, or accounting advice. Any references to tax obligations or financial matters are for general information only and should not be relied upon. We recommend individuals speak with a qualified tax professional or financial advisor for guidance specific to their situation.
