Small and medium-sized enterprises (SMEs) across Australia are experiencing a significant shift in financial strategy due to impending changes in tax debt regulations by the Australian Taxation Office (ATO).
Effective from July 1, general interest charges (GIC) and shortfall interest charges (SIC) on tax debts will no longer be tax-deductible.
With the GIC rate currently at 11.17% and compounding daily, this policy change has prompted a surge in business loan applications as SMEs seek to refinance or consolidate their tax debts before the new rules take effect.
According to data from the Loan Market Group (LMG), there has been a 486% increase in business finance inquiries related to tax debt in the 2025 financial year compared to the previous year. This dramatic rise underscores the urgency among business owners to address their tax liabilities proactively.
Finance brokers within the LMG network have observed a notable shift in client behavior. Andrew Vitucci, a finance broker at My Lending Specialist, noted that the ability to claim interest as a deduction previously provided a cushion for small business owners. With this safety net now removed, clients are prioritizing the consolidation or refinancing of their tax debts to mitigate potential financial strain.
Similarly, Elisha Zejfert, Managing Director of Savvi Lending, highlighted the growing sense of urgency in the market. Business owners are increasingly aware that inaction is no longer viable, especially for those already facing cash flow challenges. This trend is expected to continue into the new financial year as more SMEs recognize the long-term cost implications of maintaining tax debt under the new regulations.
Lenders are also reporting an uptick in applications related to ATO debt. Yanir Yakutiel, CEO and founder of Lumi, emphasized the crucial role brokers play in educating SMEs about the potential costs associated with the upcoming changes. Many small businesses may not fully comprehend the financial impact, making it essential for brokers to provide clear and actionable guidance.
For SMEs, this development presents both challenges and opportunities. While the removal of tax deductibility for interest charges increases the cost of holding tax debt, it also serves as a catalyst for businesses to reassess their financial strategies. Proactively seeking refinancing or debt consolidation options can lead to more manageable repayment structures and potentially lower interest rates, thereby improving overall financial health.
Business owners are encouraged to consult with financial advisors or brokers to explore suitable refinancing options tailored to their specific circumstances. By taking timely action, SMEs can navigate these regulatory changes effectively, ensuring sustained financial stability and growth.
