ATO Tax Changes: Four Developments To Watch 2025/26

Taxpayers are navigating a shifting landscape this financial year as the Australian Tax Office tightens its approach, and new reforms and legal challenges gather momentum.  The Ecovis experts from ECOVIS Clark Jacobs outline four matters to keep on the radar.

1. No More Deduction for ATO Interest
   From 1 July 2025, interest on overdue tax debts (the ATO General Interest Charge) is no longer deductible. This change follows concerns about the ATO’s rising debt book, which now exceeds $100 billion, and is designed to discourage taxpayers from using the ATO as a de facto bank by stretching out payments.
2. ATO Intensifies Debt Collection
   The ATO is stepping up debt collection efforts. Garnishee notices, credit reporting referrals and director penalty notices are becoming more common, and we expect this trend to continue. Businesses and individuals will need to monitor their tax obligations more carefully and plan ahead to avoid additional costs.
3. Proposed Higher Tax for Superannuation Balances Above $3 Million
   The government’s plan to impose higher taxes on superannuation balances above $3 million remains on the agenda. A major point of contention is the inclusion of unrealised gains, which challenges the long-established principle of only taxing realised income and capital gains. While compromises may still be made, some form of this measure is likely to pass into law.
   For individuals with significant superannuation holdings, particularly those with property or other appreciating assets in their fund, this could have real implications for future planning. The threshold also isn’t indexed, which means more Australians may be affected over time as asset values increase.
4. Childcare Costs and Deductibility
   A law firm has recently applied for ATO funding to revisit a 1972 High Court ruling that deemed childcare costs a private expense, and therefore non-deductible. More than 50 years on, the context has shifted significantly: childcare is often essential for parents to participate in the workforce and increase their taxable income.

If this challenge gains traction and the government ultimately legislates a change, the way childcare support is provided could look very different. A tax deduction managed through the ATO could potentially replace or simplify the current subsidy system, making life easier for many families.

Final Thoughts

The 2025/26 financial year is already shaping up as challenging for many taxpayers, with the ATO taking a harder line on debt collection and deductions. At the same time, proposed reforms to superannuation and the renewed debate on childcare costs suggest further changes are ahead. Staying informed and proactive will be critical for both individuals and businesses, to help minimise exposure to unexpected costs and provide greater certainty in tax and financial planning.