The ATO’s shift to automated tax enforcement is changing how small businesses manage compliance. Accountant and solicitor Adam Ahmed explains the practical strategies SMEs need now.
What’s happening: The Australian Taxation Office has removed tax deductions for General Interest Charge and Shortfall Interest Charge from 1 July 2025, whilst maintaining the current 11.17 per cent annual interest rate.
Why this matters: Without the ability to claim interest deductions, businesses must adopt proactive cash flow planning and risk management strategies to avoid punitive measures that could threaten their survival in an increasingly automated enforcement environment.
Small businesses are noticing a fundamental shift in how the Australian Taxation Office manages tax compliance, with the recent change in General Interest Charge remission serving as yet another example of increasing de-personalisation.
“Small businesses will have noticed the steady shift towards de-personalisation in how the Australian Taxation Office (ATO) manages tax compliance, the recent change in General Interest Charge (GIC) remission being yet another example,” says Adam Ahmed, dual-qualified accountant and solicitor and founder of Entity Accountants and Specialist Law. “The current policy shift means that businesses now might as well be dealing with a computer, rather than a person, and in doing so, results and outcomes increasingly follow a pre-determined formula with no context.”
The transformation marks a departure from how tax compliance historically worked. Dealing with the ATO previously involved negotiation and discretion, with outcomes varying depending on the officer handling the case. Now, with an automated system operating like a fixed formula, the shift brings two key consequences, according to Ahmed.
First, predictability. “The process follows strict rules, so businesses can predict the results of their choices,” Ahmed explains. “Late payments, missed lodgements or incomplete forms can trigger outcomes that are, in effect, no longer negotiable.”
Second, reduced tolerance for failure. “The ATO’s policy has become clear through its actions over the last few years – only businesses deemed likely to be successful should continue to trade,” says Ahmed. “Ostensibly this is in order to prevent further debt accumulation – the ATO claims it is an unwilling creditor, although ironically fails to realise that the feeling might be mutual.”
This is being implemented through a two-pronged strategy: early intervention and punitive action designed to change behaviour, the latter of which already exists most notably in superannuation.
New GIC rules
One major change is the denial of interest deductions on tax debts from 1 July 2025. According to the Australian Taxation Office, GIC or SIC incurred on or after this date cannot be claimed as a tax deduction, regardless of whether the debt relates to an earlier income year.
“A change that will prove challenging for some SMEs to navigate given the interest rate remains very high,” Ahmed notes. “Those who are old enough might recall the high interest rate was justified on the basis that a tax deduction was available, which makes it less onerous. With tax deduction removed but the interest rate remaining the same, the system has shifted to punitive measures to ensure businesses lodge on time, thereby allowing the ATO to take action against businesses and shut them down even earlier.”
The current GIC annual rate stands at 11.17 per cent, according to ATO data for the quarter beginning 1 October 2025. This means a company carrying a one-year $100,000 tax debt at this rate will pay approximately $11,000 in interest and will no longer recover up to $2,750 of that cost through a deduction at the 25 per cent corporate tax rate.
Superannuation changes ahead
The same rule now applies to superannuation payments, which will shift from being due quarterly to needing to be cleared within seven business days of the pay run from 1 July 2026 under the new Payday Super reforms.
“Under the current rules, if a business pays superannuation late, they pay interest on the late super until the date they hand in a form to the ATO, rather than the date they pay the super,” Ahmed explains. “For instance, if a business pays super three months late but hands in the form six months late, they must pay interest for six months, rather than three. Additionally, there is an up to 200 per cent penalty and a tax deduction cannot be claimed.”
Under the new rules from July 2026, according to the ATO, employers must pay superannuation guarantee contributions at the same time as salary and wages, with payments received by the super fund within seven business days. The ATO has indicated penalties will be 25 per cent or 50 per cent of the unpaid superannuation guarantee charge, depending on any prior penalties.
“There is a suggestion that the ATO will perform the calculation automatically and impose an additional penalty of 25 per cent to 50 per cent,” says Ahmed. “There is a suggestion that you can still fill in the form yourself in the hope of avoiding this penalty but must do so within 28 days. The ATO will not have discretion to remit the penalty.”
In practice, this means late payments or delays across superannuation obligations, along with GST and PAYG, can result in significant financial exposure, particularly given the realities of the market which has a myriad of different working arrangements.
Four survival strategies
Ahmed offers four strategies to help businesses navigate these changes, which he himself follows in his own small businesses.
First, understand the automation formula and rules. “One advantage of dealing with a computer is that the formula, and therefore the result, is always the same,” Ahmed says. “If you understand the automated outcomes that flow from different choices, you can predict the result in advance. This knowledge gives you significant intelligence relevant to decision making.”
Second, operate on the assumption that there is very little tolerance for failure. “The current policy environment assumes that businesses should only operate if they will be successful, and that they should shut down at the earliest sign of difficulty,” Ahmed notes. “Whether that reflects how business actually works or not, small business owners need to plan for the worst and understand there will be very limited tolerance for failure or signs of potential failure.”
Third, risk management is no longer optional. “Business and entrepreneurship do not work the way policy assumes they do. Businesses have cycles and owners are optimistic by nature,” says Ahmed. “However, Government policy is designed on the basis that Government obligations must be met first – often even ahead of customers – and that businesses should experience no downturns despite the natural up-and-down cycles all businesses do experience.”
Ahmed recalls an example. “I remember a government bureaucrat once asked me why my client wanted to organise an event to conduct a demonstration of their new product to clients at an expo, when they could and should instead run Google ads which would be cheaper,” he says. “There is no way to answer these questions.”
The practical solution, according to Ahmed, is to implement a rigorous risk management structure to reconcile these unrealistic expectations with commercial reality. “In other words a workaround, so you can ensure business success while ensuring the Government’s box ticking is met,” he explains. “The problem is that Government imposed penalty and action is so onerous that it is often existential to the survival of the business. This means that while you would rightly focus on how to grow the business, serve customers and serve the community, you must also recognise that there is a pay to play in place.”
Planning is essential
Fourth, map and plan cash flow in advance, particularly when it comes to tax. “Cash flow can no longer be managed reactively. Taxes in particular need to be mapped and planned ahead of time,” Ahmed says. “Timing matters just as much as payment. In an automated enforcement environment, waiting until there is a problem is usually too late. Proactive tax planning is now a basic requirement for staying in business, let alone having sufficient funds available to meet investment and expansion requirements.”
Ahmed’s background includes working at senior levels in Allens and KPMG before commencing practice in 2012. He was the founder and chair of the Tax Law Committee of the Law Society Young Lawyers and also served as treasurer of the Law Society Young Lawyers and Executive Council Member. He is also a published author for Thomson Reuters, with works including International Tax, Deductions and Assessable Income.
“Ultimately, running a business in today’s regulatory environment requires a proactive approach,” Ahmed concludes. “By understanding the ATO’s new automated systems, carefully managing cash flow and integrating robust risk management, small businesses can reduce their exposure to punitive measures and remain on a path to sustainable growth. The key is preparation.”
The ATO has indicated that taxpayers experiencing serious financial hardship should reach out early to their registered tax professional or visit the ATO website to see what support options are available. Taxpayers can also request remission of GIC or SIC in certain circumstances, though the ATO has advised that remission requests are carefully assessed to ensure a level playing field for those taxpayers who pay on time.
For businesses seeking additional guidance, Dynamic Business has previously reported on the ATO’s Vulnerability Framework, which provides support for people experiencing difficult circumstances, including small business owners facing financial hardship, mental health challenges, or other crises.
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