Government Proposes Changes to Tax Law: Deductions for ATO Interest Charges Denied

• Business News
• Financing a Business

In December 2023, the Australian Government unveiled a noteworthy proposal as part of the 2023–24 Mid-Year Economic and Fiscal Outlook (MYEFO). This announcement aims to amend tax laws concerning interest deductions related to the Australian Taxation Office (ATO). While this measure is still before parliament and yet to be passed into law, it signals a significant shift in how business finances may be managed in the future.

In a move reflecting the evolving fiscal landscape and challenges the ATO face with collecting debts, the government is set on amending tax laws to deny deductions for certain interest charges assessed by the ATO. This change specifically targets:

• General Interest Charges (GIC): Typically charged on unpaid tax liabilities.
• Shortfall Interest Charges (SIC): Applied to tax shortfalls detected during assessments.

The proposed changes are slated to take effect for income years commencing on or after 1 July 2025. This timeline gives business owners a limited window of opportunity to recalibrate the strategies used to finance their business operations.

These changes, once implemented, will reshape the current financial strategy for many businesses. Removing the ability to deduct ATO interest charges will prompt a re-evaluation of debt and tax management strategies.

Moreover, businesses may need to explore alternative funding sources beyond payment plans with the ATO to manage their cash flow. Leveraging lines of credit, optimising working capital, or considering other financing options can provide more flexibility and potentially lower costs compared to the non-deductible interest charges under the new rules.

We encourage you to evaluate your financing arrangements and explore additional funding avenues to ensure your business remains able to deal with short term challenges in the face of these changes. For personalised advice and guidance as to the finance options available to your business, reach out to the experienced team at Elevate Accounting today HERE or call us on 08 9460 1040.

NOTE: This measure remains before parliament, and the next few months may bring further refinements or alterations. At Elevate Accounting, we are committed to keeping you informed of such developments, ensuring you navigate these changes with ease.