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ATO tax debts to get more expensive under major $500 million change: ‘Level the playing field’

The interest applied to overdue tax debts will no longer be tax deductible from July 1, 2025.

Tamika Seeto
·Finance Reporter
Updated ·3-min read
Tax and people
The general interest charge and shortfall interest charge will no longer be tax deductible from next year, under government plans. (Source: Getty)

Aussies who don’t pay their tax debts on time will be stung with bigger bills from next year. The federal government has unveiled its plans to make the late payments to the Australian Taxation Office (ATO) no longer tax deductible.

The general interest charge (GIC) - currently 11.36 per cent annually - is applied when a tax debt has not been paid off by the due date. It is currently tax-deductible, however, the government plans to change this from July 1, 2025.

Hive Wise founder Hripsime Demirdjian told Yahoo Finance the “big change” was designed to encourage taxpayers to pay their debts on time.

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“The reason why this measure was introduced is because the ATO has more than $50 billion in collectable tax debt,” Demirdjian said.

“This change is being enacted in an effort to encourage the payment of tax debt on time, as the cost of debt will increase.”

The government first flagged its plan during the Mid-Year Economic Fiscal Outlook (MYEFO) last year.

It has also proposed to change the tax status of the shortfall interest charge (SIC) which is incurred when a taxpayer has incorrectly self-assessed how much they owe the government.

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The move is expected to raise $500 million per year in extra revenue once it kicks in, a win for the ATO who is trying to claw back millions in unpaid tax.

Ahead of the changes being legislated, the Treasury has released a consultation paper and details of the draft legislation.

It noted the change would “level the playing field” for taxpayers who already self-assess their tax liabilities and pay their tax on time, along with helping in “lowering the amount of collectable debt owed to the ATO”.

Aussies have been warned the ATO is chasing tax debts “more frequently” after giving taxpayers some breathing room during the pandemic.

“Now that the COVID period is well and truly behind us, they’ve started to ramp up their debt collection and [are] kind of hunting down and chasing down debts that are overdue,” Demirdjian told Yahoo Finance.

If you lodge your own tax return by the due date of October 31 and get a tax bill, your payment to the ATO will be due by November 21.

The tax bill deadline will be different if you use a tax agent to lodge your return or if you lodge after the tax deadline of October 31.

ATO commissioner Rob Heferen recently revealed the tax office was owed $50 billion in collectable debt, with its broader debt book including unpaid tax, super and other debt totalling $100 million.

“This is the largest it’s ever been and almost double the $26.5 billion of debt owed in 2019,” Heferen said.

“This debt is not disputed, most of it has been self-reported, and it’s largely made up of amounts that have been withheld from employees’ wages and collected from consumers as GST – but not passed on to Government.

“Even more worryingly, it includes some employee entitlements, such as superannuation.”

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