The true cost of tax debt just went up

Since 1 July 2025, interest the ATO charges on overdue tax debts is not tax-deductible. That includes General Interest Charge and Shortfall Interest Charge. If you carry a balance, the full cost now hits your cash flow.

What changed

• Before 1 July 2025, many businesses could deduct ATO interest.
• From 1 July 2025, you cannot deduct it. The ATO confirmed this change and updated guidance accordingly.
• The current General Interest Charge is high and compounds daily, so delays get expensive fast.

Why it matters

• No deduction means every dollar of ATO interest is a real dollar out the door.
• Compounding means the longer you wait, the faster it grows.
• Tighter collections mean less flexibility if you fall behind.

What it really costs now

If you owed tax last year and thought the interest was "not too bad after the deduction", that cushion is gone. Interest is now a straight cost to your business, and it compounds every day your debt sits unpaid.

Smart moves if you have a balance

1. Act quickly. The cost curve is steep now that there is no deduction.
2. Check the numbers. Confirm your balance, interest to date, and any unlodged returns.
3. Set up or revisit a payment plan. Realistic, automated payments stop compounding from getting away from you.
4. Fix the causes. Late lodgements, poor cash flow hygiene, or underpaid PAYG and super will keep recreating the debt.
5. Use separate accounts for GST, PAYG, and super so the ATO is always funded before it is due.

When restructuring can help

If your arrears are large or historic, a formal small business restructuring or workout plan may make sense. This depends on your compliance history, current viability, and director conduct. Get advice early.

How we help

FTA Accountants will:

• Calculate your true position and projected interest
• Negotiate practical payment plans with the ATO
• Clean up lodgements and fix system gaps in payroll, GST and super
• Design a cash flow routine that prevents the debt from coming back

Need a plan to clear tax debt and stop it returning?

Book a confidential chat with us today.

📞 07 5409 2300 ✉ info@ftaaccountants.com.au