The government should prioritise better service delivery and engagement with small business users before imposing punitive changes to the GIC, the small business advocate has said.

The Council of Small Business Organisations Australia (COSBOA) is urging the government to retain the tax deductibility of interest charges imposed by the ATO onto small businesses with many small businesses "already frustrated in their tax dealings".

COSBOA chief executive Luke Achterstraat said removing the deductibility of the general interest charge (GIC) and shortfall interest charge (SIC) from 1 July 2025 was a punitive and radical departure from current practice that would impact small businesses the most.

“The overwhelming majority of small businesses are doing the right thing and seek to pay their tax on time and pay it correctly," Achterstraat said.

“Targeted measures to deal with high-debt accounts would be more appropriate and equitable to encourage voluntary compliance across the tax system.”

Achterstraat said COSBOA would like to see the government instead prioritise improving service delivery to small businesses by the ATO.

“Last year over one million calls to the ATO went unanswered, many of which came from time-poor and anxious small businesses trying to navigate a complex system," he said.

“The government should prioritise better service delivery and engagement with small business users before treating them with contempt.”

Achterstraat echoed concerns raised by CPA Australia that the proposed non-deductibility of GIC would effectively raise the penalty rate by 25 per cent and up to 47 per cent for sole traders depending on the marginal tax rate.

“By making these interest costs on tax debts non-deductible, the proposal risks the ballooning of tax liabilities of small businesses to unsustainable levels, potentially threatening their viability.”

Achterstraat also agreed with CPA Australia that the goalposts were being moved.

“The ATO’s past sentiments to delay tax payments during the pandemic may not have been taken on by small business owners if they knew the GIC would later become non-deductible.”

“Is this really about repaying outstanding tax debt, or just a penalty on taxpayers struggling to do the right thing and meet their obligations?”

“The ATO risks biting the hand that feeds it if this policy is blindly pursued.”