Urgent tax time warning for Australian small businesses as law aimed at recouping $45b comes in to effect

Millions of Australians are being urged to check their tax status ahead of a law aimed at recouping $45bn coming into effect in just a few days.

Millions of Aussie small businesses are being warned to pay their tax bills on time or they will be slugged with a fee, compounding daily.

In changes to taxation laws coming into effect on July 1, interest charged by the Australian Taxation Office (ATO), which is set at 11.17 per cent per annum but the rate is compounded daily, will no longer be tax deductible.

This means businesses who previously didn’t have to worry about the debt due to it being tax deductible in the next financial year, would now have to pay their tax bill plus any interest owed.

A change in tax policy could see small businesses needing to pay their tax liabilities sooner. Picture: NewsWire / Emma Brasier

CA ANZ tax expert Susan Franks warns the approximately 2.6m small businesses in Australia this change will substantially increase the real cost of falling behind on tax obligations, particularly for small businesses already operating on tight margins.

“Small businesses currently hold the majority of the ATO’s outstanding tax debt, and this change will make that debt even more expensive,” said Ms Franks.

“Previously, small businesses may not have been concerned about accumulating interest on tax debt, as it was deductible at tax time.

“But from 1 July 2025, small businesses could find themselves in a difficult situation and if not managed carefully, interest owed to the ATO could quickly exceed the amount of tax they were originally meant to pay.”

The change comes into effect as the tax office tries to recoup the $45bn owed to them by small businesses.

It comes as the tax office is looking get back more than $45bn in tax revenue. Picture: NewsWire / Nicholas Eagar

ATO assistant commissioner Anita Challen reminded taxpayers to pay in full and on time to avoid general interest charges accruing on overdue debts.

“These changes will mean it will cost more to carry a tax debt and, while taxpayers won’t feel this change until next tax time, ATO general interest charge is currently charged at 11.17 per cent and compounds daily making it so important to get on top of your tax obligations,’ Ms Challen said.

“If you have a tax debt you’ve been putting off paying – now is the time to pay.”

The changes to the tax law comes as separate data sent from CreditorWatch shows more than 30,000 businesses across Australia owe the tax office at least $100,000.

Since April 2022, the ATO has disclosed business tax debts to credit reporting bureaus, such as CreditorWatch, if they owe more than $100,000 and the business has not responded to outreach in two months.

The number of businesses CreditorWatch says owes the tax office at least $100,000. Picture: Supplied

CreditorWatch says this is not a full list of businesses that owe more than $100,000 but worryingly 15,635 individuals or sole traders currently owe the tax office at least six figures.

The ATO urges any businesses that are unable to pay their tax liabilities to get in contact with the taxation office.

‘If you cannot pay on time and in full, you should also discuss your financial position with your accountant or finance provider to understand if there are alternative methods of funding payment of tax debts that might have a lower interest rate,” Ms Challen said.

“ If you are considering obtaining third party financing to pay your tax debt, you should discuss the tax implications with your registered tax agent or adviser.”

Originally published as Urgent tax time warning for Australian small businesses as law aimed at recouping $45b comes in to effect