How New Legislation After 1 July 2025 Affects Your Business

Borrowing From the ATO Is About to Cost You More Than Ever

Picture this: you have a tax debt with the ATO, you’re paying it off slowly, and you think of it as a “manageable” loan. But come 1 July 2025, that once-manageable debt just turned into something closer to a high-interest credit card—because interest on overdue tax can no longer be claimed as a tax deduction.

In short, if you’re late with your ATO payments:

• You pay General Interest Charge (GIC) of around 10–12% (the exact rate changes quarterly).
• You cannot deduct that interest cost against your taxable income.
• You must now earn the money to pay both the interest and the tax on the money used to pay that interest (think 15% or more effectively, and even higher for some taxpayers).

Why Is This Changing?

Previously, if you paid late, you could at least offset a portion of the ATO’s interest charges by claiming it as a deductible business expense. That’s going away on 1 July 2025. The ATO’s interest charges will be treated like a penalty or fine—completely non-deductible.

What It Means for Your Bottom Line

• Higher Overall Costs: Every dollar in overdue tax interest is now fully your responsibility, with no tax offset.
• Cash Flow Impact: You’ll need to earn the money (and pay tax on it) just to cover the interest. This can quickly sap your cash flow.
• Encourages Timely Payment: The government’s goal is to push businesses toward paying on time. The cost of missing deadlines will be steeper, so the margin for error shrinks.

The Real Cost Could Be Like a Credit Card (or Worse)

Let’s assume the GIC hovers around 11%.

• Because you can’t deduct that 11% interest, and you still need to earn money to pay it, your real effective cost can soar well beyond 15%.
• If you’re operating as a company taxed at 25%, you’d need $133 to pay $100 worth of interest, because $33 goes to tax.
• If you’re a sole trader or in a partnership, with a higher personal tax rate, it’s even more expensive.

When you factor in compound interest—Einstein famously called compound interest the “eighth wonder of the world”—the costs can escalate quickly.

Principal Payments Also Hurt

Paying down the actual tax debt (the principal) also requires earning money that will be taxed. So every dollar you put toward the debt is costing you more than a dollar in real terms. When you add it all up, the effective cost of an ATO debt can approach 100%—and that’s not an exaggeration.

How to Stay Ahead

1. Stay Current on Tax Obligations
   Keep an eye on your BAS, GST, PAYG, and income tax obligations. If needed, hire a professional accountant or bookkeeper to ensure no due dates slip through the cracks.
2. Budget for Taxes
   At Your Business Angels, we set you up so that you’re paying tax obligations weekly or as soon as you receive your income. You’ll avoid accumulating big debts that could spiral into punishing interest.
3. Get Professional Help
   If you’re worried about upcoming tax bills or current debts, speak to your accountant or client coordinator. We can help you restructure finances, explore refinancing options, and ensure you don’t get stuck with sky-high interest costs.

The Bottom Line

From 1 July 2025, “borrowing” from the Australian Taxation Office is like taking out a high-interest, non-deductible loan—potentially worse than a standard credit card. If you have outstanding tax debts or anticipate them in the future, now’s the time to act. Paying down (or avoiding) ATO interest can save you a heap of money, stress, and sleepless nights.

Have questions or need guidance?
Reach out to Your Business Angels today. Let’s get your tax obligations in order and keep those nasty interest costs at bay.

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