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Set to come into effect on 1 July 2025, a legislative change will abolish the tax benefit that has reduced the real cost of Australian Taxation Office (ATO) interest charges by a quarter for most Aussie businesses, prompting business finance experts at Valiant Finance to urge SMEs to quickly address this change.
CEO and co-founder of Valiant Finance, Alex Molloy, said these changes represent “a significant cost increase that many small businesses simply haven’t factored into their financial planning”.
“With the current GIC rate at 11.17 per cent compounding daily, the removal of tax deductibility means businesses will feel the full impact of that rate from July onwards,” Molloy said.
According to Valiant, the timing of the legislative changes will prove challenging for SMEs with unpaid ATO debts, particularly since those debts have surged to $35.2 billion by the end of 2024 as the Taxation Office practised more leniency during COVID-19.
Molloy said: “Many business owners have been using the ATO as their default line of credit, prioritising other payments while letting tax obligations slide.
“That strategy becomes significantly more expensive after 30 June.
“For a business with $50,000 in ATO debt, the change means paying over $5,500 annually in non-deductible interest charges, equivalent to more than $15 per day in interest alone.”
As such, Valiant has called for “immediate action” by SMEs to get ahead of this EOFY deadline through three options.
“First, contacting the ATO proactively to establish a payment plan, or even better, through a registered tax agent as they tend to have a stronger relationship with the tax office,” Molloy said.
“Second, prioritising tax debt in their immediate cash flow allocations.
“And third, exploring refinancing options to convert this increasingly problematic debt into a standard business loan with fixed repayments and ongoing tax deductibility.”
Molloy said that while refinancing can appear counterintuitive, “the opposite is true”, due to business loan interest remaining tax-deductible after 1 July unlike the ATO’s GIC.
“Additionally, business loans can often be structured over longer terms (36 months or more) compared to typical ATO payment plans (18-24 months), significantly reducing monthly repayment pressure,” Molloy said.
“This isn’t just about avoiding additional costs, it’s about positioning your business for stronger financial health and better financing options in the future.”
[RELATED: How brokers can assist with ATO deduction changes]
