Small Businesses Face Tougher Times As Tax Interest Deductions Scrapped

Small businesses are bracing for more financial pressure as new legislation removes the ability to claim deductions on ATO interest charges.


The recently passed law, which takes effect from 1 July 2025, permanently denies deductions for the General Interest Charge (GIC) and Shortfall Interest Charge (SIC). These charges, often incurred when businesses enter into payment plans with the ATO or have shortfalls in their tax payments, were previously tax-deductible — a small relief for cash-strapped businesses.

Now, that safety net is gone.


Accounting professionals and industry bodies have warned the timing couldn’t be worse. With inflation, high interest rates, and lingering post-COVID pressures, many small businesses are already struggling to stay afloat. Removing deductions on ATO interest effectively increases the cost of carrying tax debt, which could push some businesses over the edge.


“In over 20 years of being an accountant, I've never seen this many businesses closing down and going into liquidation,” said Natalie Lennon, founder of Two Sides Accounting. “This really couldn't have come at a worse time.”


H&R Block’s Mark Chapman echoed the sentiment, warning that the high GIC rate — currently sitting at 11.38% — combined with the loss of deductibility, means even small tax debts are no longer a sustainable way to manage cash flow.

“This could see more businesses calling in the receivers — or the ATO doing it for them,” he said.


Professional accounting bodies had pleaded with Parliament to remove or delay the changes, citing the real risk they pose to business viability. But the legislation has now received royal assent, and small businesses will need to adapt quickly.


What can you do?

  • Prioritise tax debt: Where possible, pay down ATO liabilities first to avoid high, non-deductible interest charges.
  • Seek advice early: Don’t wait until debt is unmanageable. Talk to your accountant or financial advisor about proactive strategies.
  • Review cash flow plans: Ensure your budgeting allows for timely tax payments moving forward.

With the changes locked in, preparation will be key to staying resilient in an already challenging financial climate.

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