Small and medium-sized business owners are facing a significant financial change that could impact cash flow and tax planning. From July 1, 2025, the Australian Government will no longer allow tax deductions for interest charges imposed by the Australian Taxation Office (ATO). For many SMEs already managing tight cash flow, this change could add to financial strain.
The new rule applies to interest charges such as the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) that the ATO imposes on overdue tax debts. Previously, businesses could claim these as deductions, but from mid-2025, this will no longer be the case.
This shift comes at a time when many SMEs are already feeling financial strain, particularly as the ATO intensifies efforts to recover outstanding tax debts.
Siobhan Williams, Head of Mortgages at Pepper Money explains, “Many small business owners rely on tax deductions to manage their expenses effectively. The removal of this deduction means that SMEs need to be even more proactive in managing their tax liabilities and cash flow.”
Why tax deductions for interest charges matters for business owners
Losing the ability to deduct ATO interest charges means businesses could face higher tax bills and additional financial stress. With tax debts accumulating interest, business owners need to act now to review their financial strategies and explore options for managing liabilities before these changes take effect.
According to Williams, the change underscores the importance of having the right financial strategies in place. “Small business owners should review their tax obligations well in advance and explore financing options that can help them stay on top of payments and avoid accumulating interest charges.”
What Business Owners Can Do
If your business has outstanding ATO debt or is struggling with cash flow, Williams shares steps to consider:
- Consult a Financial Professional – Speak with an accountant or financial advisor to understand the full impact of these changes and explore strategies for managing tax obligations.
- Review Your Financial Position – Take stock of all outstanding debts, including ATO liabilities, and assess your current financial health.
- Consider Alternative Financing Options – Business owners may have options such as refinancing, cash flow lending, or asset-based finance to restructure their debts and improve financial stability.
- Act Before July 1, 2025 – With these changes coming soon, now is the time to explore solutions rather than waiting until tax bills become unmanageable.
- Plan for the Future – Managing debt is not just about short-term relief; it’s about setting up a sustainable financial strategy that allows businesses to thrive in the long run.
The Bigger Picture
“This legislative change highlights the need for SMEs to take control of their financial planning. With tax deductions on ATO interest charges being phased out, businesses that rely on these deductions as part of their financial strategy need to adjust their approach,” says WIlliams.
One option that businesses might consider is seeking flexible funding solutions. “At Pepper Money, we understand that cash flow fluctuations are a reality for many SMEs. Alternative finance options can help business owners stay in control of their finances, ensuring they have access to funds when they need them most,” says Williams.
While the government’s goal is to encourage timely tax payments, the change presents a challenge for businesses already under pressure. “Preparation is key. Business owners should work closely with their accountants or financial advisers to develop strategies that keep them financially resilient,” Williams concludes.
More details can be found on the ATO website here.