Big Change in Tax Debt Rules: What Aussie Small Businesses Need to Know Now

Don’t miss our LinkedIn post where we first shared this exciting update!

Are you carrying an ATO tax debt and relying on the interest to be deductible? That loophole just closed.

As of 2025, interest charged by the Australian Taxation Office (ATO) is no longer tax deductible, even if you’re on a payment plan. With rates currently sitting at 11.17% compounding daily, this change hits hard. For example, a $50,000 tax debt could rack up over $5,500 in non-deductible interest every year. That’s roughly $15 a day out of your pocket, with no tax benefit in return.

This isn’t just a policy update. It’s a shift that could impact cash flow, tax planning, and financial strategy for tens of thousands of businesses across Australia. For many small operators already juggling payroll, BAS, rent, and supplier costs, this could be the tipping point between staying afloat and spiralling into deeper debt.

So what’s really going on, and what can you do about it? Unconditional Finance will walk you through what’s changed, what it means for your business, and how you can take control before the interest piles up.

What Has Changed With ATO Tax Debt Interest?

To start with, let’s look at the specifics.

Until recently, if you were paying off your tax debt on a payment plan, the General Interest Charge (GIC), which is the ATO’s default interest rate on overdue tax, was tax deductible for many businesses. This provided a small but important incentive to stay in good standing while you caught up on payments.

But under the latest changes to tax law, this deduction has been completely removed. That means:

• Even if you’re not in default (because you’re on a payment plan), you can no longer claim the interest cost.
• Whether you’re a sole trader, company, or trust, ATO interest now becomes an unrecoverable business expense.
  

This has serious implications for how tax debt is managed and prioritised. It removes one of the few benefits of staying in the ATO’s payment system, making ATO payment plan alternatives a financially smarter option.

If you’re still treating tax debt like it’s “cheap money” or “not urgent”, this change might be a wake-up call.

How Much Could It Really Cost You?

Let’s break it down with real numbers, because the costs aren’t theoretical. They’re daily, growing, and potentially devastating.

Tax Debt	Annual ATO Interest (11.17%)	Daily Cost
$10,000	$1,117	$3.06
$25,000	$2,792	$7.65
$50,000	$5,585	$15.30
$100,000	$11,170	$30.60

Unlike bank loans or business lines of credit, ATO interest compounds daily, not monthly. That means the longer you delay repayment, the faster your debt grows, creating a snowball effect that can quickly overtake your ability to manage it.

And here’s the kicker. None of this is tax deductible anymore. You’re paying thousands just to stand still, with no offset when tax time comes around. That’s money you could be reinvesting in your business, building a cash buffer, or paying staff.

If you’re already feeling stretched, the maths alone makes it clear that getting tax debt help is far better than doing nothing.

Why This Matters for Small Businesses

Now let’s connect the dots. Why is this change such a big deal for small business owners?

Because ATO debt is common, often unavoidable, and in many cases, kept quiet out of fear or embarrassment. But the reality is, it’s not a sign of failure. It’s often a sign that cash flow has been tight, or unexpected costs have thrown things off course. It happens.

That said, this shift in deductibility makes tax debt a much heavier burden than before. Here’s how it plays out in real life:

1. Less breathing room – You lose a useful deduction that once helped reduce your tax bill, even while repaying debt.
2. Harder to budget – Because GIC compounds daily, it’s hard to predict exactly how much you’ll owe next month, let alone next quarter.
3. Cash flow stress – Every day you delay adds more interest. That means less flexibility to manage wages, stock, or overheads.
4. Risk of escalation – If the ATO doesn’t see progress or communication, they may take recovery action. This includes garnishees, freezing bank accounts, or issuing a Director Penalty Notice.
5. Reduced borrowing confidence – Some lenders won’t touch a business with unresolved ATO debt. Others will, but only at higher rates unless it’s properly structured.
6. Mental and emotional strain – It’s not just about money. Tax debt can weigh heavily on your mind, disrupt your sleep, and make it hard to focus on growth or strategy.
   

In short, this change affects your tax position, borrowing potential, day-to-day cash flow, and mental wellbeing. And pretending it’s not there won’t make it go away.

What Are Your Options If You Have ATO Tax Debt?

Here’s the good news: an ATO tax debt loan could be a way out. In fact, there are more small business tax debt solutions available today, especially if you act before the situation escalates.

Let’s explore the most practical and strategic options available:

1. Refinance your tax debt with a specialist lender

Some lenders offer short-term loans or working capital facilities designed specifically to clear ATO debt. These products are often more flexible than traditional bank loans and come with:

• Lower interest rates than the ATO
• Structured repayments that fit your revenue cycle
• No early payout penalties
  

By refinancing ATO debt with a manageable loan, you replace unpredictable compounding interest with clarity. This also removes the risk of escalation and gets the ATO off your back.

2. Apply for a business loan to cover the tax liability

Even if it’s not a business loan for ATO debt, many lenders will still approve funding to settle ATO obligations if your business can demonstrate:

• Consistent turnover
• A viable repayment plan
• A clean trading history (outside the ATO debt)
  

It’s also an opportunity to consolidate multiple debts into one facility—potentially including options to refinance to consolidate tax debt—which may ease interest pressure, reduce admin, and improve cash flow forecasting.

3. Secure funding before the ATO flags your account

Timing is critical. Once the ATO escalates your file (e.g. sends warning letters, applies penalties, or takes enforcement action), your funding options start to shrink.

Lenders prefer proactive borrowers who seek funding early, not those already under legal pressure. The earlier you move, the better your terms and choice of lenders. Understanding how the small business loan process typically works can make it easier to prepare documents, anticipate lender requirements, and apply with greater confidence.

4. Use asset-backed lending to your advantage

If you own business assets like vehicles, machinery, or commercial property, you could unlock working capital through asset-secured lending. This can reduce the interest rate significantly and give you the leverage you need to:

• Pay the ATO in full
• Rebuild your cash buffer
• Avoid selling essential equipment just to raise cash
  

Even invoices or unpaid client work can sometimes be used to access upfront funds through invoice finance or factoring.

5. Engage a broker to negotiate with lenders on your behalf

ATO debt is a sensitive area. Many lenders have internal policies against it, but brokers know which ones don’t, and how to present your case in the best light.

A mortgage broker in Sydney can:

• Filter out lenders who are unsuitable or likely to decline
• Package your application with clarity and confidence
• Secure faster approvals and more competitive rates
• Handle the paperwork while you focus on running your business
  

Think of it as having someone in your corner who understands both sides: your situation, and the lender’s criteria.

Why Small Business Owners Should Act Now

Still weighing up whether to do something about your tax debt? Here’s why speed matters.

• Interest compounds every day, so the longer you wait, the bigger your problem becomes.
• Funding doors start closing, and lenders are more open when the ATO isn’t breathing down your neck.
• ATO pressure increases with time, and that can escalate to bank account garnishees or director penalties.
• Stress levels go up, and that affects your clarity, decision-making, and overall business health.
• You waste money daily; every dollar in interest is a dollar you don’t get back.
  

Think of early action as a strategy, not a setback. Getting on the front foot helps you regain control, protect your reputation, and rebuild stability before small issues become major threats.

How a Broker Can Help You Get Ahead of Tax Debt

Managing tax debt isn’t just about money. It’s about navigating uncertainty, understanding your funding options, and avoiding mistakes that could make things worse.

A business finance broker offers more than just access to lenders. They offer:

• Honest assessment of your situation, including strengths and red flags
• Tailored loan options based on your business model and debt profile
• Negotiation expertise to get the right structure and interest rate
• Support during the application, settlement, and ATO payment process
• Long-term advice to help you stay debt-free and financially resilient
  

Many business owners say they “wish they’d spoken to a broker sooner” because the clarity, support, and faster outcomes could have saved them thousands, along with months of stress.

Key Takeaways for Aussie Business Owners

✅ ATO interest is no longer tax deductible, even on payment plans

✅ Interest is charged at 11.17% daily, compounding fast

✅ Tax debt can now cost you thousands annually without adding business value

✅ Specialist ATO tax debt loans and business funding are available

✅ Act early to unlock better terms and avoid legal pressure

✅ A mortgage broker in Sydney can help you find the right path forward, tailored to your needs

Don’t Let Tax Debt Derail Your Business. Reach Out Today

If tax debt is growing and your options feel limited, remember that there’s help. Whether you’re behind on BAS, GST, or income tax, there’s tax debt relief in Australia that can help before interest spirals out of control.

We work with lenders who understand the pressure small businesses face and can help you refinance or repay your ATO debt with smarter, more sustainable solutions.

Reach out for a confidential chat. No judgment. Just expert help to take back control, clear the path ahead, and get your business moving again.

Frequently Asked Questions (FAQs)

1. If I’m already on an ATO payment plan, does this new interest rule still apply to me?

2. Will refinancing my ATO debt hurt my chances of getting approved for other loans later on?

3. Can I still apply for business finance if the ATO has already issued a warning or demand notice?

4. What’s the difference between an ATO payment plan and a tax debt loan from a lender?

5. Are there lenders in Australia that specialise in ATO tax debt loans?