ATO to Deny Deductions for Interest on Late Tax Payments from 1 July 2025 – What It Means for You

ATO to Deny Deductions for Interest on Late Tax Payments from 1 July 2025 – What It Means for You

The ATO has announced a significant change that will affect many Australian businesses and individuals from 1 July 2025. Under the new rule, interest charged by the ATO on overdue tax debts will no longer be tax-deductible.

This is a big shift — especially for small business owners who often use short-term deferrals as a way to manage cash flow. If you’ve previously relied on claiming interest on late tax payments as a deduction, this change could increase your out-of-pocket costs. Here’s what you need to know and how you can prepare.

What’s Changing?

At the moment, if you’re late in paying your tax — whether it’s BAS, PAYG, superannuation, or income tax — the ATO charges interest on the amount owing. That interest, known as the General Interest Charge (GIC) or Shortfall Interest Charge (SIC), is generally tax-deductible for businesses or individuals running a business.

But from 1 July 2025, that will no longer be the case. The government has confirmed that interest on unpaid ATO debts will no longer be a deductible expense.

Why This Matters

While interest charges from the ATO aren’t usually high compared to commercial lending rates, the ability to claim them as a tax deduction helps to reduce their sting. Losing this deduction will increase the real cost of any tax paid late.

This is especially important for:

Small and medium businesses who use ATO payment deferrals as part of cash flow management

Property investors and sole traders with variable income who sometimes fall behind on payments

Taxpayers in payment plans who have previously factored in deductibility of interest when budgeting

Why the ATO Is Making This Change

The ATO is trying to curb the practice of using unpaid tax bills as a form of short-term finance. By removing the tax deductibility of interest, the ATO is signalling that late payment should be the exception, not a planning tool.

This change also aligns with the government’s broader efforts to improve compliance and reduce the tax debt gap.

How to Prepare Before 1 July 2025

Now is the time to rethink how you manage your tax obligations. Here are some practical steps that can help reduce your exposure to ATO interest charges:

  1. Pay on Time Wherever Possible

The best way to avoid ATO interest? Don’t incur it. Set up calendar reminders, automate payments, and talk to your accountant about expected payment dates so you’re not caught off guard.

  1. Build a Tax Buffer

Consider setting up a separate bank account to regularly set aside money for tax obligations — similar to a GST or tax provision account. This helps prevent the temptation to use that money elsewhere and puts you in a stronger position at tax time.

  1. Speak Up Early if You’re Struggling

If you’re likely to have trouble meeting a payment, reach out early. The ATO is more likely to offer flexible options or payment plans if you act before the due date.

  1. Compare Costs: ATO vs Commercial Credit

In some cases, using a business overdraft, short-term loan or line of credit might now be a better option than deferring tax payments, since commercial interest remains deductible — while ATO interest won’t be.

  1. Always Lodge On Time – Even If You Can’t Pay

Even if you can’t pay your tax in full, it’s important to lodge your returns on time. This avoids extra penalties and keeps you in a better position to negotiate with the ATO.

  1. Review Your Cash Flow Forecasts

Make time to review your cash flow with your accountant. Forecasting ahead lets you see potential pressure points in advance and plan accordingly.

From 1 July 2025, the tax system is getting a little less forgiving. Interest on late tax payments will no longer be deductible, which makes it more important than ever to stay on top of your tax obligations and avoid falling behind.

If you’re not sure how this change might affect you or your business, now’s the time to start the conversation. At SKD Accountants, we work closely with clients across Melbourne to stay ahead of tax changes, improve cash flow, and minimise unnecessary costs.

Need a second set of eyes on your tax planning strategy?

We’re here to help — get in touch for a free consultation.

Estate Planning Considerations for SMSFs: What You Need to Know

Estate Planning Considerations for SMSFs: What You Need to Know

Estate planning is a crucial but often overlooked aspect of managing a Self-Managed Superannuation Fund (SMSF). While many SMSF trustees focus on growing their retirement savings, failing to plan for how superannuation benefits will be distributed upon death can result in tax liabilities, legal disputes, and financial hardship for beneficiaries.

This article outlines the key SMSF estate planning considerations to ensure your wealth is protected and distributed according to your wishes.

  1. Binding Death Benefit Nominations (BDBNs)

A Binding Death Benefit Nomination (BDBN) is a legal document that directs your SMSF trustee on how to distribute your superannuation benefits when you pass away. Without a valid BDBN, the trustee has discretion over how benefits are paid, which may not align with your intentions.

Key considerations:

  • Ensure your BDBN is valid and compliant with your SMSF trust deed
  • Check whether your BDBN expires or is non-lapsing
  • Nominate eligible beneficiaries such as a spouse, children, or your estate
  1. Reversionary Pensions

A reversionary pension allows a nominated beneficiary (such as a spouse) to continue receiving pension payments from your SMSF after your passing. This can provide financial stability for dependants while offering potential tax benefits.

Advantages of a reversionary pension:

  • Ensures continuity of income for your spouse or dependants
  • May provide tax advantages compared to a lump sum withdrawal
  • Reduces the risk of delays in accessing funds
  1. Tax Implications for SMSF Beneficiaries

Superannuation death benefits may be taxed depending on the recipient and how the benefits are paid. Key factors include:

  • Whether the beneficiary is a dependent or non-dependent under superannuation law
  • The tax components of the superannuation balance (taxable vs tax-free)
  • Whether the benefit is paid as a lump sum or income stream

Tax considerations for beneficiaries:

  • Dependents (e.g. spouse, children under 18): Generally receive SMSF benefits tax-free
  • Non-dependents (e.g. adult children): May pay up to 17% tax on the taxable component

Effective estate planning can help minimise tax liabilities and maximise the amount passed on to beneficiaries.

  1. Reviewing and Updating Your SMSF Trust Deed

Your SMSF trust deed sets the rules for estate planning within your fund. If your deed is outdated or does not allow for strategies such as non-lapsing BDBNs or reversionary pensions, your estate plan may not be legally enforceable.

What to do:

  • Review your SMSF trust deed regularly
  • Ensure your deed allows for current estate planning strategies
  • Update the deed if necessary to align with legal and personal changes
  1. Using a Testamentary Trust for Added Protection

A testamentary trust is a trust established through your Will that can receive SMSF benefits. This strategy is often used to provide:

  • Asset protection against bankruptcy, divorce, or legal claims
  • Tax benefits for minor beneficiaries, who can receive income taxed at adult rates

Who should consider a testamentary trust?

  • Individuals with blended families
  • Beneficiaries who may be at risk of financial mismanagement
  • Families wanting to minimise tax on superannuation benefits
  1. Preventing Disputes Over SMSF Inheritance

SMSF inheritance disputes are increasing, particularly in blended families or where there is trustee discretion. Without clear estate planning, conflicts between beneficiaries can lead to lengthy legal battles and delays in distributing funds.

How to reduce the risk of disputes:

  • Establish a legally binding estate plan for your SMSF
  • Keep all legal documents up to date
  • Communicate your wishes with trustees and family members

Take Action – Secure Your SMSF Estate Plan

Estate planning for SMSFs requires careful planning to ensure assets are distributed tax-effectively and in accordance with your wishes. Seeking professional advice can help protect your wealth and provide financial security for your loved ones.

At SKD Accountants, we specialise in SMSF estate planning, compliance, and tax minimisation.

Book a free consultation today to ensure your SMSF estate plan is structured to protect your legacy and maximise tax benefits.

The FBT Compliance Checklist: What Every Employer Should Know

The FBT Compliance Checklist: What Every Employer Should Know

Fringe Benefits Tax (FBT) is a key consideration for any Australian employer offering benefits beyond base salaries. Staying on top of FBT compliance not only minimises costly penalties but also ensures your business remains in good standing with the Australian Taxation Office (ATO). In this comprehensive guide, we’ll walk you through an essential FBT compliance checklist that every employer should know.

Understanding Fringe Benefits Tax

FBT is a tax paid by employers on certain benefits provided to employees, or their associates, in place of, or in addition to, salary or wages. Unlike income tax, which is paid by employees, FBT is the responsibility of the employer. Common examples of fringe benefits include:

  • Company cars
  • Expense payments
  • Loans provided at a low interest rate
  • Entertainment expenses

Knowing which benefits attract FBT and the exemptions available is critical to managing your tax obligations effectively.

The Essential FBT Compliance Checklist

To streamline your FBT obligations, consider the following steps:

  1. Understand Your FBT Obligations
  • Identify Taxable Benefits: Familiarise yourself with which benefits are subject to FBT and any relevant exemptions or concessions available.
  • Stay Updated: Tax laws change regularly. Make sure you’re aware of the latest ATO guidelines and legislative updates.
  1. Maintain Accurate Recordkeeping
  • Detailed Documentation: Keep comprehensive records of all fringe benefits provided, including dates, values, and the method used to determine the taxable value.
  • Receipts and Invoices: Retain all supporting documents such as receipts, invoices, and any other evidence that substantiates the benefit provided.
  1. Ensure Precise Calculations
  • Gross-Up Rates: Understand and apply the correct gross-up rates when calculating the taxable value of fringe benefits.
  • Use Reliable Tools: Consider using specialised accounting software or FBT calculators to ensure accuracy and reduce manual errors.
  1. Timely Lodgement of FBT Returns
  • Know Your Dates: Be aware of the FBT year (typically from 1 April to 31 March) and the lodgement deadlines set by the ATO.
  • Plan Ahead: Develop a calendar reminder system to ensure all FBT returns and payments are submitted on time.
  1. Review Your Employee Benefit Schemes Regularly
  • Annual Reviews: Conduct regular audits of your employee benefit schemes to ensure they remain compliant with current FBT regulations.
  • Adjust as Needed: Update policies and practices to accommodate any changes in legislation or business operations.
  1. Seek Professional Advice
  • Consult a Specialist: Given the complexities of FBT, consulting with an experienced accountant or tax advisor can provide personalised insights and strategies to optimise your tax position.
  • Continuous Learning: Attend FBT seminars or subscribe to ATO updates to remain informed about new developments.

Tips for Effective FBT Management

  • Leverage Technology: Use accounting software that integrates FBT calculations to streamline recordkeeping and reporting.
  • Employee Education: Ensure your staff understand the implications of FBT and the importance of maintaining accurate records for any benefits they receive.
  • Stay Proactive: Regularly review your policies and procedures rather than waiting for an ATO audit to identify potential issues.

Conclusion

Maintaining FBT compliance is not just about avoiding penalties—it’s about protecting your business and ensuring a smooth relationship with the ATO. By following this FBT compliance checklist, you can establish robust systems that not only meet statutory requirements but also enhance your business’s financial efficiency.

If you’re looking for expert guidance or need assistance in managing your FBT obligations, SKD Accountants is here to help. Contact us today to discuss how we can support your business in navigating the complexities of Fringe Benefits Tax.

Maximise your compliance and keep your business ahead with our expert accounting services. Stay informed, stay compliant, and let us help you achieve peace of mind with every tax return.