Small and medium businesses could be facing a cash flow crunch in the wake of sweeping changes made by the Australian Tax Office (ATO).
The proposed bill to make the general interest charge (GIC) and shortfall interest charge (SIC) non-deductible passed Parliament. This means that from July 1, 2025, businesses will no longer be able to claim deductions on these charges, significantly increasing the cost of tax debt.
In addition, the superannuation guarantee rate is set to further increase from 11.5% to 12% from July 1, 2025. With severe non-deductible penalties for late or missed super payments of up to 200% plus interest, there is increased pressure on SMEs to meet their obligations. The pressure will increase further from July 1, 2026, with the introduction of payday superannuation, which will require employers to pay super contributions at the same time as wages. This will make the employers liable for the super guarantee charge penalty if they fail to make contributions within seven days of payday.
These changes come amidst a challenging market, with widespread labour shortages and record insolvency figures posing threats to SMEs. The new policies will likely cause further cash flow disruptions for businesses as they pivot to avoid costly penalties for debt and non-compliance.
Debt Collection Pressure
The ATO has ramped up its debt collection measures, putting further pressure on businesses with unpaid debt. With over $35 billion owed by small businesses, The ATO is sending record numbers of director penalty and garnishee notices. This coincides with a spike in corporate insolvency figures and concerns around business viability.
This increase represents a significant concern for company directors, who may be choosing to restructure their businesses rather than expose themselves to personal financial risk. These increases serve as a reminder of the importance of strict compliance and good fiscal practices.
Key takeaways
SMEs should take steps to account for additional payroll costs and review their tax strategies to avoid ATO debt where possible. This may also mean that businesses may need to rely on loans and lines of credit with lower interest rates than the GIC and SIC to maintain stable cash flow. Any businesses currently on an ATO payment plan or with accumulated tax debt should seek professional advice to implement alternative strategies.
It is also imperative for businesses to strengthen cash flow practices and avoid common mistakes such as poor forecasting and delayed invoicing that could further impact the bottom line.
If your business is struggling with cash flow and you’re concerned about the upcoming changes, Optima Partners can help. Our team of experienced tax accountants can provide timely advice and support your business with a tailor-made strategy.
