Starting July 1, 2025, if you’ve got a tax debt with the ATO, and you’ve been managing to pay it off at a comfortable pace, you need to be aware that the debt could start feeling a lot like a high-interest credit card.
Why? Because you won’t be able to deduct the interest on overdue tax payments anymore!
Here’s what you need to know if you miss an ATO payment after 1 July 2025:
- General interest charge and shortfall: General Interest Charge (GIC) will sit around 10–12% (changing quarterly).
- You won’t be able to deduct that interest from your taxable income.
- You’ll have to earn enough to cover both the interest and the tax on that interest — which could be 15% or more, and even higher for some!
What’s Changed?
In the past, if you were a bit late, you could at least offset some of the ATO’s interest charges since they were deductible. Now they will deny deductions altogether! Come July 2025, though, those interest charges will be treated like a penalty — completely non-deductible.
What this means for anyone who has a debt with the ATO or misses payments…
- Higher Overall Costs: Every dollar you incur in overdue tax interest will be solely your responsibility, with no tax offsets to cushion the blow.
- Cash Flow Strain: You’ll need to earn money to pay the interest — and to make it more frustrating. You’ll pay tax on that too! This quickly eats into your cash flow.
In short, the ATO is trying to motivate businesses to pay on time. Missing deadlines will cost more, leaving little room for mistakes. The true cost could rival a credit card (or worse!)
Let’s say the GIC is around 11%. Because you can’t deduct that interest, your actual cost could skyrocket beyond 15%. For example, if your business is taxed at 25%, to cover $100 worth of interest, you’d actually need to earn $133, and $33 goes straight to tax! For sole traders or partnerships, the costs could be even higher. With compound interest, costs can escalate rapidly!
Over 3,000 Businesses Required to Lodge Monthly BAS?
There are even reports that businesses with a history of late lodgements and poor payment may even be forced to submit their BAS monthly instead of quarterly. And if the ATO decides to switch your lodgement frequency to monthly, apparently you won’t be able to revert to quarterly submissions for a full 12 months.
Monthly BAS lodgements usually lead to increased admin, lower cashflow and higher fees.
How to Stay Ahead of the Game
Stay On Top of Your Tax Obligations (Obviously)
Keep track of your BAS, GST, PAYG, and income tax responsibilities. Talk to the team here at Accountants Direct to help you stay organised and avoid missed due dates.
Budget for Taxes
We can help you set up a system to pay your tax obligations weekly or as soon as you receive income. This way, you can steer clear of accumulating large debts that lead to punishing interest.
Get Professional Help
If you’re feeling anxious about looming tax bills or existing debts, don’t hesitate to reach out to your Accountants Direct representative or our head office team by replying to this email. We’re here to help!
Accountants Direct is Australia’s favourite national tax agent. Book here to help with your BAS, do your tax or call us on 1300 TAX SHOP (1300 829 746)
