As Australian citizens, everyone has to abide by the laws of the land.

These laws, of course, include timely tax payments.

The Australian Taxation Office (ATO) recently announced a shift in how they will handle one significant concern among Aussies.

Starting 1 July 2025, the ATO will be enforcing heftier penalties on Aussies lagging in settling their tax bills.

The days of the interest applied on overdue tax debts being tax-deductible are numbered, as recently passed laws sealed this fate.

Legislation removing tax deductibility for both the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) was passed by the Senate last Thursday.

The change in legislation was ATO's huge move that could bolster tax revenue by $500 million in the fiscal years 2026 and 2027.

The new legislation about taxes should encourage Australians to settle their taxes in a more timely manner. Image Credit: Pexels/Nataliya Vaitkevich

What does this mean for the average Aussie, especially seniors?

Hripsime Demirdjian, the founder of Hive Wise, stated that this change will not be tax-beneficial for individuals and small businesses.

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

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

Currently, the ATO imposes the General Interest Charge (GIC) when a tax debt has not been paid by the due date.

These charges include instances where a tax return has been lodged late.

Meanwhile, the Shortfall Interest Charge (SIC) could come into play when an incorrect self-assessment results in less tax being paid than actually owed.

The current GIC rate is at 11.17 per cent per annum, while the SIC is at 7.17 per cent per annum.

Both charges compound daily and were tax-deductible, offering a slight reprieve to Aussies.

The government first announced this impending change in December 2023, as they framed it as a way to encourage tax compliance.

These changes also aimed to reward taxpayers who consistently meet their obligations.

'Removing these deductions will enhance incentives for all entities to correctly self-assess their tax liabilities and pay on time, and level the playing field for individuals and businesses who already do so,' the government stated in the 2023-24 Mid-Year Economic and Fiscal Outlook (MYEFO).

However, not everyone is on board with this approach.

The Council of Small Business Organisations Australia (COSBOA) criticised ATO's latest move.

The COSBOA argued that it will disproportionately impact small businesses.

COSBOA's CEO, Luke Achterstraat, pointed out that the majority of small businesses strive to pay their taxes on time and correctly.

'Targeted measures to deal with high-debt accounts would be more appropriate and equitable to encourage voluntary compliance across the tax system,' Mr Achterstraat said.

Meanwhile, CPA Australia also argued that these changes could impact small businesses already dealing with inflation and high interest rates.

For those running small businesses or managing personal finances, this change underscored the importance of staying on top of tax obligations.

As 1 July looms closer, it's time to review any outstanding tax debts and consider settling them before the upcoming changes.

Proactivity is key, and with the right approach, you can avoid the sting of these increased costs.

Key Takeaways

• The Australian Taxation Office (ATO) is set to increase penalties for overdue tax debts, with interest applied on unpaid tax becoming non-deductible starting 1 July 2025.
• The removal of tax deductibility for General Interest Charge (GIC) and Shortfall Interest Charge (SIC) could generate $500 million in tax revenue in 2026 and 2027.
• This legislative change aimed to promote timely tax payments and level the playing field for compliant taxpayers.
• The Council of Small Business Organisations Australia (COSBOA) expressed their concerns that these measures could disproportionately affect small businesses.

What are your thoughts on this ATO crackdown? Have you been diligent with your tax payments, or are you concerned about how these changes might affect you? Share your experiences and thoughts with our community in the comments below.

 

[IAN3005]

BIG BROTHER.....

 

[Towing]

What happens if you have to chase group certificates not supplied by ex-employers that in the meantime have closed?? Tip: the ATO might not like it but always keep your last pay slip as the balances should be on them. A few years ago many people got letters saying they owed $$$$ that was higher than their gross salary.
There was so many there was talk of "class action" against ATO.

 

[Luckyus]

THE GOVERNMENT IS NOT YOUR FREIND AND THE ATO IS MOST DEFINITELY NOT THE HAIL FELLOW WELL MET, THEY DON'T NEED COMBS TO PART THEIR HAIR?

 

[Catherines]

Perhaps everyone should stop grumbling and blaming the ATO for their own inefficiencies. If money is owed, pay up and smile even though that smile might be a bit hard to do.

 

[gordon1940]

50 thousand, Million Dollars unpaid!!! How often do we hear "I have paid Taxes all my Life" by the believing "Entitled".

 

[jr59]

Why pay them when they are sending millions of dollars to Ukraine . Under the Rome statue which is what Australia signed under they are committing war crimes !!!

 

[IAN3005]

What happens if you have to chase group certificates not supplied by ex-employers that in the meantime have closed?? Tip: the ATO might not like it but always keep your last pay slip as the balances should be on them. A few years ago many people got letters saying they owed $$$$ that was higher than their gross salary.
There was so many there was talk of "class action" against ATO.

You dont need a payslip.... they know everything about you. I hadn't done tax return for 10 years, and all the tax accountant did was open my file in the ATO portal and all my financials were there. 10 years tax returns done in an hour.