How ATO tax debt is changing this July
2 min read
26th June 2025
From 1 July 2025, important changes are coming to the way the Australian Tax Office (ATO) treats unpaid tax debts - and many small business owners may not yet be aware of how these updates could affect them.
As Credit Advisors, we’ve outlined the key changes to help business owners have informed conversations with their accountant - and plan ahead with confidence for the new financial year.
What’s changing?
From 1 July, ATO interest charges on unpaid tax debt will no longer be tax-deductible. Previously, many businesses were able to offset these interest charges as a tax deduction, softening the impact of carrying a tax debt.
With this change, businesses will now have to absorb the full cost of ATO interest charges - increasing the real cost of holding tax debt going forward. The change comes as part of a broader set of Federal legislative updates to ensure tax debt is treated consistently with other forms of debt across the credit market.
Why does this matter?
Many business owners - particularly small and medium enterprises (SMEs) - have historically used tax deductibility on interest charges as a way to manage tax debt over time.
From July onwards, this strategy will become more expensive. Businesses with outstanding tax debt will face higher after-tax costs, which may place additional pressure on cash flow. For SMEs already managing slim margins, these higher costs could come as an unwelcome surprise.
For this reason, many accountants and finance professionals are now encouraging clients to review their current tax debt positions before the end of the financial year, to assess whether clearing tax debt earlier could lead to better financial outcomes.
What can you do?
The best first step is to speak to your accountant. They can assess how the removal of tax deductibility on interest charges may impact your business and advise on the most suitable course of action.
It’s also important to understand your current tax debt position and the cost of any interest charges you may be incurring. With the new rules coming into effect on 1 July, many business owners may wish to consider strategies for paying down tax debt earlier or exploring alternative ways to manage upcoming liabilities.
Lenders are now taking ATO debt more seriously
In response to the ATO’s tougher stance on outstanding tax debts, many major lenders are now applying stricter scrutiny to business finance applications involving ATO liabilities.
Where some lenders may have previously shown flexibility, we’re now seeing a noticeable shift - with some declining applications outright or requiring ATO debt to be fully cleared before proceeding. This makes it more important than ever for business owners to be proactive in managing tax obligations and seeking support early.
How can Vie help?
While we don’t provide tax advice, we can assist with finance options designed to help improve cash flow and manage business tax obligations.
If you would like to explore the different ways to approach tax debt - or strengthen your borrowing position for the financial year ahead - our team is here to help. We work closely with clients and their accountants to provide smart finance solutions tailored to each business’s needs.
To learn more about these changes, you can visit the ATO’s official update HERE.