Written

For

The

Australian

-

The

ATO

is

tightening

rules

on

the

interest

paid

on

outstanding

debts

$50 billion. That's how much Australians currently owe the tax office in unpaid debts, and from 1 July the government is turning the screws to get it back.

Here's the change catching many off guard. Right now, if you owe money to the ATO, you're hit with a hefty interest charge — but at least you can claim that interest as a tax deduction. From 1 July, that deduction disappears.

The math is confronting. Sydney accountant Timothy Ricardo crunched the numbers for me: the ATO's 10.78 per cent interest rate effectively becomes 14.37 per cent for small businesses and a whopping 20.33 per cent for individuals on the top marginal tax rate. That's credit card territory, and it's about to be levied on tax debts overnight.

My concern is the collateral damage. CPA Australia has warned the change could push struggling small businesses — already dealing with inflation, high rates and tight credit — over the edge into liquidation. Tax partner Vincent Licciardi suggested a sensible middle ground: an ATO interest amnesty over the next 12 to 18 months for anyone who brings their obligations up to date. I think that's a smart idea, but I'm not holding my breath.

If you're sitting on an ATO debt, there are a couple of levers to pull. If the debt is business-related, refinancing it through a bank loan can preserve deductibility on the interest. You can also apply to the ATO to have interest remitted altogether — but be warned, the ATO has become noticeably tougher on remissions, even for taxpayers who've stuck to payment plans.

My take? The message from Canberra couldn't be clearer. Stop treating the ATO like a cheap line of credit. Pay your tax bill first, and pay it fast — because from July, the cost of delay is about to double.