The Council of Small Business Organisations Australia (COSBOA) has called on the Government to retain the tax deductibility of interest charges imposed by the Australian Tax Office (ATO) on small businesses, warning that its removal would place further strain on already struggling enterprises.
Luke Achterstraat, CEO of COSBOA, voiced concerns that the proposed change, which would remove the deductibility of the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) from 1 July 2025, represents a drastic departure from current practices and would have a disproportionate impact on small businesses.
“The overwhelming majority of small businesses are doing the right thing. They are actively trying to pay their taxes on time and accurately,” said Achterstraat. “Instead of blanket policies, more targeted measures to address high-debt accounts would be a more appropriate and fair approach to encourage voluntary compliance.”
Achterstraat emphasized that the introduction of non-deductibility for these interest charges would be indiscriminate, adding unnecessary financial burden to small businesses that are already grappling with difficult operating conditions. He pointed out that this move would hit the hardest those small businesses struggling to maintain cash flow in an increasingly challenging economic environment.
“The government’s approach of blanket policies, especially when it comes to raising costs for businesses, is simply punitive,” Achterstraat said. “It undermines the ability of small businesses to remain viable and to reinvest in their growth.”
Further complicating matters, Achterstraat noted that many small businesses feel frustrated by their experiences dealing with the ATO, citing the fact that more than one million calls to the ATO went unanswered in the past year. He stressed that these calls were often from time-poor small business owners who were trying to navigate a complex and, at times, overwhelming tax system.
“Small businesses are under pressure from every side, and when they do try to reach out for help, they’re often left with unanswered questions,” Achterstraat said. “The government should focus on improving service delivery and engagement with small businesses before implementing policies that punish them further.”
The potential consequences of the non-deductibility of GIC were also highlighted by CPA Australia, which warned that such a change would effectively raise the penalty rate on small business tax debt by as much as 25%, with sole traders potentially facing increases of up to 47%, depending on their tax bracket.
“Making these interest charges non-deductible risks ballooning tax liabilities for small businesses to unsustainable levels, putting their very survival in jeopardy,” Achterstraat said. “Many of these businesses are already struggling to meet their tax obligations. This policy could push them over the edge.”
Achterstraat also pointed out the inconsistency in the ATO’s approach, particularly in light of its previous stance during the pandemic, when it allowed for deferred tax payments to help businesses survive the economic downturn. “If small business owners had known that the GIC would eventually become non-deductible, they may have been less inclined to take the government’s offer to delay payments during COVID-19,” he said.
The CEO questioned whether the government’s aim was truly to help businesses pay off their tax debts or whether the new policy was simply a form of penalty against those doing their best to comply with their obligations. “Is this policy really about helping businesses repay their outstanding tax debts, or is it a penalty for those businesses that are already trying to do the right thing?” he asked.
Achterstraat concluded that if the government continues down this path, it risks creating a significant rift between small businesses and the ATO, potentially damaging the long-term relationship between the two. “The ATO risks biting the hand that feeds it if this policy is blindly pursued,” he warned. “Small businesses are essential to the Australian economy, and the government needs to take that into account before making decisions that could have long-lasting, negative consequences.”
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SMEs are speaking out against a new ATO rule that could hit their wallets. COSBOA is urging the government to rethink before it’s too late. News, COSBOA Dynamic Business
