Overview of Legislative Changes
A legislative package effective 1 July 2025 introduces key changes for businesses: you can no longer claim income tax deductions for ATO interest charges; the notification period for BAS refunds is extended from 14 to 30 days; and stronger rules around refund offsets against debts on hold empower the ATO to withhold credits or refunds. (ato.gov.au) These are part of broader reforms aimed at improving tax system fairness and reducing avoidance. (ato.gov.au)
Why These Changes Matter
- Cash flow implications: Loss of deductibility for ATO interest could increase taxable income, leading to unexpected tax burdens for small businesses.
- Delayed access to refunds: Refund retention extension means any refund the business expects might take more than a month to arrive under certain conditions.
- Stricter offsetting: Credits and refunds may be reduced if there are outstanding obligations or “debts on hold.” This may catch some businesses off guard if they assume refunds will be paid in full.
Practical Checklist For Staying Compliant
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Budget for nondeductibility: Estimate the effect of removing interest deductions—review past interest expense write-offs and anticipate higher taxable income.
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Review and track debts: Keep clear records of any ATO debts, including those under dispute or on hold. Resolve or identify strategies to manage them to avoid surprises at refund time.
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Monitor BAS refunds: Be aware that with the extended retention period, your cash flow may lag by up to 30 days. Plan reserve cash accordingly.
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Adjust bookkeeping and software: Ensure your systems flag interest on tax debt separately; update how refunds and credits are handled in your AR/AP systems.
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Professional advice: Discuss with your accountant whether restructuring your debt or paying down high-interest obligations now would save more long-term in tax.
Example Scenario
ABC Carpentry Pty Ltd., a small business, received a refund for overpaid GST of AU$10,000 in August 2025. Historically, refunds were processed within two weeks, but now with 30-day retention, ABC Carpentry faces a cash flow shortfall. Additionally, ABC had been claiming deductions for interest charged by the ATO in prior years; now, these are no longer deductible, increasing their expected tax liability by approximately AU$2,500 this year. Recognizing this, they have adjusted invoicing terms and reduced discretionary expenses to cover that liability.
Key Mitigation Strategies
- Maintain adequate cash reserves to buffer delays in receiving refunds.
- Make proactive payments on ATO debts where possible to minimize interest accrual.
- Communicate with the ATO if you believe amounts are wrongly withheld or used for offset; resolving disputes early may help.
- Stay updated: The ATO website’s “Businesses – new legislation” pages will publish full text of laws and detailed guidance. (ato.gov.au)
Bottom line: These changes shift both timing and expense burdens toward businesses. Effective forecasting, strict debt management, and aligned accounting practices will be essential to stay compliant and protect cash flow.