Updated: 01 Jul, 2025
The ATO has made it clear: “We don’t want to be your bank anymore.”
With over $105 billion in tax debt across Australia and rising costs everywhere, this change pushes self-employed Australians and business owners to rethink their debt strategy.
Until now, if you owed the ATO money (for unpaid tax or super), they’d charge you interest, but you could claim that interest as a tax deduction. That reduced your overall tax bill and softened the blow.
Starting 1 July 2025, that benefit disappears.
What Changed And Why It Matters
Until now, many small businesses and self-employed Australians treated ATO debt as short-term finance. You’d pay interest, sure, but you could deduct that interest during tax time.
Not anymore.
Under the Treasury Laws Amendment Act 2025, the ATO will no longer allow taxpayers to claim deductions on:
- Interest on General Interest Charges (GIC)
- Interest on Shortfall Interest Charges (SIC)
- Interest on over/early payments of tax
This change applies to businesses, companies, and trusts from the 2025–26 financial year onward.
ATO’s current interest rate? A steep 10.78%, compounded daily.
That’s much higher than most mortgage rates or business loans, and now it’s 100% non-deductible.
What Our Brokers Are Saying About the ATO Changes
Jonathan Preston, a Senior Mortgage Broker at Home Loan Experts, has followed the shift in how ATO debt is treated and why refinancing may now be a more brilliant move for many self-employed borrowers.
“With the tax deduction on ATO interest now gone, it’s worth reviewing whether refinancing that debt into a mortgage is smarter.
“Now that the interest is no longer deductible, you’re paying the full 10.78% out of pocket, making ATO debt much more expensive than many mortgage or business loan rates.
“It’s not a brand-new problem. The ATO has always charged interest on unpaid tax. But what’s new is that this interest is no longer tax-deductible, which makes it harder to justify delaying payment.
“Also, while payment plans are still available, they’re usually capped at one to two years, so they don’t offer much long-term breathing room.
“Many self-employed borrowers simply don’t have enough cash to pay off tax debt in full. That’s why they go on ATO payment plans and pay high interest over time.”
The Key Takeaway
If you’re self-employed and struggling with tax debt, consolidating it into your home loan or another lower-rate product may save you thousands and give you back control over your repayments.
ATO Tax Debt vs Refinance: What’s Cheaper?
Let’s say you owe $30,000 in ATO debt.
Option | Interest Rate | Deductible | Annual Interest | Term |
---|---|---|---|---|
ATO (GIC) | 10.78% | No | ~$3,234 | 1-2 years |
Refinancing | 6.5% | Yes | ~$1,950 | Up to 30 years |
Even without daily compounding, a refinance spreads the cost over a longer term and restores the tax deductibility if the loan is used for business purposes.
Refinancing doesn’t make tax debt disappear; it just restructures it. If you’re consolidating into your home loan, make sure you understand the long-term cost and structure it properly for deductibility. Always talk to your broker and accountant first.
Benefits Of Refinancing Your ATO Debt
- You get a lower interest rate than what the ATO is offering
- You can spread repayments over a longer term
- You might be able to claim interest as a tax deduction (if structured properly)
- You can consolidate other higher-interest debt while you’re at it
- You might be able to improve cash flow stability for your business.
A Word Of Caution
Refinancing does not erase the debt; it restructures it.
If you roll ATO debt into a home loan, you might pay more interest over time if you only make minimum repayments.
That’s why it’s vital to:
- Get help from your mortgage broker
- Speak with your accountant
- Structure the loan correctly to keep it deductible
Talk To An Expert Today
The new financial year has started. If you’ve got ATO debt, now’s the time to assess whether refinancing could work for you. Our brokers can compare your options and help you properly structure the loan.
Call us on 1300 889 743 or start your free online assessment today.