Compliance
Compliance Strategies for Small Business After ATO’s 2025 Law Changes
Recent Australian tax law changes affecting BAS refund retention, deductions for ATO interest, and penalty rules mean small businesses must adapt their bookkeeping, cash flow planning, and compliance systems immediately.
By NomadicTax Research Team • 5-8 min read • November 14, 2025
## What’s Changed
Australia has introduced a set of tax law amendments effective from **1 July 2025** that specifically impact small businesses and general insurers: ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/amending-the-tax-law-to-reduce-compliance-cost-for-general-insurers?utm_source=openai))
Key changes include:
- **Denying deductions for ATO interest charges**: Businesses **cannot claim income tax deductions** for interest charged by the ATO on or after 1 July 2025. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/amending-the-tax-law-to-reduce-compliance-cost-for-general-insurers?utm_source=openai))
- **Extended retention for BAS refunds**: The mandatory notification period for Business Activity Statement (BAS) refund retention has doubled—from **14 to 30 days**. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/amending-the-tax-law-to-reduce-compliance-cost-for-general-insurers?utm_source=openai))
- **Commissioner’s discretion on refunds/credits when debts on hold**: The ATO now has power to **not apply refunds or credits** if debts are in hold status. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/amending-the-tax-law-to-reduce-compliance-cost-for-general-insurers?utm_source=openai))
- Additional changes include incentives in sectors such as critical minerals, hydrogen production and housing supply support. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/amending-the-tax-law-to-reduce-compliance-cost-for-general-insurers?utm_source=openai))
## Implications for Small Businesses
These changes carry several material implications:
- **Reduced deductibility**: Interest from unpaid ATO debt can no longer be used to reduce taxable income, increasing taxable income and possibly cash tax due earlier than expected.
- **Longer cash flow delays**: BAS refunds may be retained for up to 30 days, which may impact short-term liquidity needs. Planning for this delay is essential.
- **Debt impact**: Having debts on hold could negate expected refunds or credits, so debt status must be monitored.
- **Sector-specific planning**: Those operating in targeted sectors (mining, critical minerals, hydrogen) may benefit from production incentives; small businesses in housing development may access new incentives. These require review of investment/industry eligibility. ([ato.gov.au](https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/amending-the-tax-law-to-reduce-compliance-cost-for-general-insurers?utm_source=openai))
## Examples
- A café expects a BAS refund of $5,000—under the old 14-day rule, it planned operations based on funds within two weeks. From 1 July 2025, expect at least double the wait.
- A small manufacturer accrues interest on an overdue PAYG liability—interest paid to the ATO will no longer be deductible; plan cash reserves accordingly.
## Actionable Steps
1. **Review financial projections and cash flow models** to allow for delays in refunds and non-deductibility.
2. **Track debts closely**, especially debts under hold; ensure communication with ATO regarding status.
3. **Audit past practices** for claiming ATO interest deductions; anticipate adjustments or amendments if misclaimed.
4. **Ensure BAS practices** comply with extended retention and eligibility criteria for refunds being held.
5. **Investigate incentives** in your industry: if involved in critical minerals, hydrogen, or housing development, understand eligibility and required documentation to claim incentives.
## Conclusion
These 2025 law changes place greater risk on small businesses unprepared for cash flow tightness, changed deductibility, and more stringent debt/refund rules. Staying compliant now means understanding the effective dates, aligning practices to new rules, and seeking advice when in doubt. Doing so can help avoid unexpected tax liabilities and ensure smoother operations.