Overview
Starting 1 July 2025, the ATO will change how it treats interest on overdue tax debts. These changes affect both businesses and individuals. Moreover, lenders will review credit profiles more closely. In addition, these adjustments will likely influence borrowing practices. Read more about how to navigate the new lending landscape, below.
Key Changes
Non-Deductible Interest Charges:
Firstly, starting 1 July 2025, the ATO will no longer allow the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC) to be tax-deductible. The GIC is a fee applied when taxpayers fail to pay their taxes on time. It is calculated based on both the amount owed and the length of the delay. Similarly, the SIC is levied when there is an underpayment of taxes.
Previously, these charges could sometimes be offset against taxable income, reducing their overall impact. However, by removing their deductibility, the ATO aims to increase the actual cost of carrying overdue tax debts. This change is driven by the need to encourage timely payments and to ensure that interest charges truly reflect the financial burden of delayed tax settlements.
Impact on Lending Assessments:
Furthermore, lenders will now scrutinise outstanding tax liabilities more closely. In doing so, they will consider the higher cost burden caused by non-deductible interest charges. As a result, both businesses and individuals might see an impact on their borrowing capacity. This adjustment is motivated by the need for lenders to better assess risk. They now factor in that these charges add to overall debt burdens and may signal financial stress. Consequently, the revised lending assessments will align more closely with a taxpayer’s true financial health.
Implications for Borrowers
For Businesses
• Cash Flow Constraints:
In particular, higher non-deductible interest costs may tighten cash flow. Consequently, meeting financial obligations and obtaining new financing may become harder.
• Alternative Financing Solutions:
Alternatively, businesses can consider cash-flow finance. This option converts receivables into working capital. Thus, it helps maintain liquidity.
For Individuals
• Credit Profile Considerations:
Similarly, outstanding tax debts can lower personal credit scores. Therefore, this may impact the ability to secure loans for home purchases or personal expenses.
• Proactive Debt Management:
Additionally, individuals should manage tax obligations carefully. In doing so, they preserve their creditworthiness.
Strategic Recommendations
• Assess Current Tax Liabilities:
Firstly, review your tax debts now. This step helps you understand the upcoming impact.
• Explore Financing Alternatives:
Next, consider options like cash-flow finance. Such alternatives can boost liquidity and manage increased costs.
• Consult Financial Experts:
Whenever you are unsure of your options, speak with financial professionals. They can help you create strategies that align with the new rules.
Conclusion
In summary the upcoming ATO changes require a proactive approach from everyone. Both businesses and individuals must act now. By understanding these changes and exploring financing options, you can manage your cash flow better. Moreover, our team at Starling Capital is here to help. Please reach out to us for tailored guidance and support to achieve your financial goals.
For further assistance in navigating these changes and exploring tailored lending solutions that suit your unique circumstances, feel free to reach out to our team at Starling Capital. We’re here to help you identify the best strategies to maintain a healthy cash flow and achieve your financial goals.
This article is intended for informational purposes only and does not constitute financial advice. Please consult with a professional adviser for personalised guidance.
