Your ATO debt is costing more than you think – and has been for almost a year

There's a change that came into effect on 1 July 2025 that a surprising number of business owners carrying ATO debt don't know about. Not because it wasn't announced – it was – but because it arrived quietly, mid-year, without the fanfare of a Budget measure or a rate change. It just became the new reality.

The General Interest Charge (GIC) – the interest the ATO applies to unpaid tax debt – is no longer tax-deductible.

That's it. Three lines buried in the Treasury Laws Amendment Act. But the financial effect for businesses sitting on unresolved ATO debt is material, and it's been accumulating for nine months.

What the numbers actually look like

The GIC rate for the current quarter sits at 10.96% per annum, compounding daily. Before 1 July 2025, a business in the 25% tax bracket was effectively paying around 8.2% on that interest after claiming the deduction. From that date forward, they're paying the full 10.96%. The deduction is gone. The rate hasn't changed, but the real cost has – quietly, and permanently, for as long as the debt remains unresolved.

On a $150,000 ATO debt, the difference between the old effective rate and the new one is roughly $4,100 a year. That's not a rounding error. For a business already under cash flow pressure, it's a number that matters.

What makes this particularly worth understanding is the timing. Many businesses entered 2025 with ATO payment arrangements in place – structured plans negotiated during or after the pandemic period, when the tax office was more flexible and business owners were buying time. Those plans didn't account for GIC deductibility disappearing. The cost of staying on that arrangement is now higher than when it was set up, and in most cases, nobody has told them.

Where this sits in the broader picture

The ATO's approach to debt collection has shifted significantly over the past 18 months. After several years of deliberate restraint, the tax office is now using its full enforcement toolkit – garnishee notices, Director Penalty Notices, wind-up applications – at a pace that has no post-pandemic precedent. DPN volumes reached record highs in 2024–25, with the Tax Ombudsman announcing a formal review of the ATO's practices in response.

The removal of GIC deductibility sits alongside this – not as a deliberate enforcement measure, but as a structural change that makes unresolved debt more expensive to carry at exactly the moment the ATO is less willing to wait.

What this means in practice

The options available to a business with ATO debt are widest before the tax office begins formal recovery action. That's not a sales line – it's how the process actually works. Once a Director Penalty Notice (DPN) is issued, directors have 21 days to act before personal liability locks in. Once a garnishee notice hits a bank account, the conversation changes entirely.

For businesses currently on a payment plan, now is the time to review whether the arrangement still makes sense given the change to GIC deductibility – and whether a more structured resolution might produce a better outcome overall.

For businesses that have been avoiding the conversation, the maths have shifted. Every month of delay costs more than it did before July. That's worth sitting with.

If you'd like to understand where your business stands, our team is available for a confidential conversation. The situation is usually clearer than it looks from the inside.

AVA Advisory specialises in ATO debt resolution and business restructuring for Australian small and medium businesses. Speak with our Head of Strategy and Growth, Anthony Percy.