Mortgage brokers offering private funding stand to profit from the ATO’s upcoming change where interest on unpaid tax debts will no longer be tax deductible from 1 July 2025. This policy makes outstanding tax debts more expensive for clients, increasing their financial strain and potentially reducing their borrowing capacity with traditional lenders.
Brokers with access to private funding can capitalise on this by providing alternative financing solutions to clients needing quick repayment of costly ATO debts or those struggling with traditional lending criteria due to tax liabilities. Private funding can offer faster, more flexible loan options often secured by first or second mortgages at competitive rates outside the usual bank processes, helping clients avoid accumulating expensive non-deductible interest.
By positioning private funding as a strategic tool, brokers can:
- Attract clients who require urgent funds to settle ATO debts before the higher interest burden takes full effect.
- Offer refinancing opportunities to consolidate tax debts and mortgages under more manageable terms.
- Differentiate their service in a competitive market by addressing complex client needs beyond standard home loans.
- Generate additional revenue streams with private funding commissions and broaden their lending portfolio.
The increasing cost of tax debt will likely push more clients to seek swift solutions, making private funding a valuable option brokers can profitably offer while supporting client financial health and loan serviceability. Integrating private lending expertise strengthens a broker’s advisory role and opens pathways for new business in an evolving finance landscape.
In essence, brokers embracing private funding can turn the tax debt interest changes into a business growth opportunity by meeting client demand for flexible, quick-access finance that traditional lenders may not provide.
From 1 July 2025, interest charged by the ATO on outstanding tax debts, known as the General Interest Charge (GIC), will no longer be tax deductible. Currently, the GIC, which compounds daily at a rate around 11.17%, can be claimed as a deduction, effectively reducing the net cost of carrying a tax debt. With the new rules, this relief is removed, making it more expensive for taxpayers to hold overdue tax liabilities forward. This measure aims to encourage timely tax payment by increasing the carrying cost of tax debt and ensuring fairness between those paying tax on time and those deferring payments.
For mortgage brokers, this change presents a mixture of challenges and opportunities. On one hand, the increased cost of carrying unpaid ATO debts may put additional financial pressure on borrowers who also have mortgage commitments. Clients with outstanding tax liabilities may face higher overall debt servicing burdens, potentially affecting their borrowing capacity and risk profile. This situation calls for mortgage brokers to carefully assess clients’ tax debt status and advise on the impact that the nondeductibility of GIC may have on their overall financial health and loan serviceability.
Conversely, the changes strengthen the incentive for clients to keep tax liabilities current or resolve tax debts quickly. Mortgage brokers can use this as an advisory point, encouraging clients to seek early payment or effective payment plans to avoid accumulating non-deductible interest costs. The ATO continues to allow payment plans where interest will still accrue but reduces with payments—this may offer manageable options for clients struggling to pay in full immediately, though brokers should warn about the compounding effect and advise the shortest feasible payment timeframe to limit interest growth.
Furthermore, the removal of interest deductibility on ATO debts might influence brokers’ discussions about clients’ broader debt strategy, including whether refinancing or third-party financing solutions could be sensible to cover tax liabilities at potentially lower interest rates. Collaborating with tax professionals will be important to deliver integrated advice on tax implications and financing options.
In summary, mortgage brokers should be prepared for an environment where unpaid ATO debt becomes costlier for their clients due to these tax law changes. Proactive engagement with clients about their tax status, encouragement of timely tax payments, and coordinated financial planning will be key to helping clients navigate the heightened cost of tax debt while preserving borrowing strength and affordability. This evolving tax policy landscape underscores the need for mortgage professionals to deepen their understanding of clients’ full financial obligations beyond just credit and property considerations.
