ATO Interest Charges No Longer Tax-Deductible: What You Need to Know
Effective 1 July 2025, the Australian Taxation Office (ATO) has implemented a significant change that affects every taxpayer with outstanding tax debt: interest charges imposed by the ATO are no longer tax-deductible. This includes both the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC)—two common penalties applied to late or underpaid tax liabilities.
What’s Changed?
Previously, taxpayers could claim a deduction for interest on tax debts, helping to soften the financial blow of late payments. However, under the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, this deduction has been repealed. From now on:
- GIC and SIC incurred on or after 1 July 2025 are non-deductible, regardless of whether the debt relates to an earlier income year.
- The GIC rate currently sits at 10.78% per annum, compounding daily.
- If the ATO remits interest incurred after 1 July 2025, it will not be included in assessable income, unlike previous years.
Timing Is Everything
The date the interest is incurred, not paid, determines deductibility. For example:
- Interest incurred 30 June 2025 allows a full deduction
- Interest incurred 1 July 2025 and after results in zero deductibility.
Who Is Affected?
This change impacts all taxpayers, but especially:
- Small and medium businesses relying on ATO payment plans.
- Individuals with ongoing disputes or delayed assessments.
- Taxpayers with substituted accounting periods, who will be affected from their next financial year starting after 1 July 2025.
Financial Impact
Without the deduction, the real cost of ATO interest increases sharply. Businesses may face cash flow shocks, and individuals could see their tax bills rise unexpectedly. The ATO debt now becomes one of the most expensive forms of financing, often more costly than commercial loans.
What Can You Do?
To minimise the impact:
- Review and settle outstanding ATO debts before they accrue any more non-deductible interest.
- Explore alternative financing—interest on genuine business loans may still be deductible.
- Strengthen your tax compliance systems to avoid future penalties.
Need Help Navigating These Changes?
At Altitude Advisers, we specialise in helping individuals and businesses manage their tax obligations strategically. Whether you’re facing an ATO debt, planning for future assessments, or need advice on financing options, our expert team is here to support you.
Contact your trusted Adviser today to schedule a tax health check and ensure you’re not caught off guard by these new rules.
