ATO Interest Charges No Longer Tax Deductible from 1 July 2025

General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.

Since 1 July 2025, the ATO’s general interest charge (GIC) and shortfall interest charge (SIC) are no longer tax deductible. This is one of the most significant compliance-related changes in recent years, and it disproportionately affects small businesses and individuals carrying outstanding tax debt.

If you owe money to the ATO — or have been slow to pay BAS or income tax — the cost of that debt just went up substantially.

What changed

Previously, GIC and SIC incurred on overdue tax liabilities were deductible in your tax return. This partially offset the cost of carrying ATO debt, effectively reducing the after-tax interest rate.

From 1 July 2025, this deduction has been removed entirely. The change applies to any GIC or SIC incurred on or after that date, regardless of which income year the underlying debt relates to.

The legislation: Treasury Laws Amendment (2024 Tax and Superannuation Measures No. 1) Act 2024, amending section 25-5 of the ITAA 1997.

What are GIC and SIC?

Charge	When it applies	Current rate
GIC (General Interest Charge)	Accrues daily on any overdue tax liability — income tax, GST, PAYG, super guarantee	~11.36% p.a. (Q1 2025-26)
SIC (Shortfall Interest Charge)	Applied when the ATO amends your assessment and you owe additional tax	~7.36% p.a. (GIC minus 4%)

The GIC rate is recalculated each quarter based on the 90-day bank-accepted bill rate plus a 7% uplift. At current levels, it’s among the most expensive forms of debt an individual or business can carry.

The real cost increase

Here’s how the deductibility change affects the effective cost of ATO debt:

For individuals (37% marginal rate + 2% Medicare)

Tax debt	Annual GIC (~11%)	Old after-tax cost	New after-tax cost	Extra cost
$50,000	$5,500	$3,355	$5,500	+$2,145
$100,000	$11,000	$6,710	$11,000	+$4,290
$200,000	$22,000	$13,420	$22,000	+$8,580

For companies (25% base rate)

Tax debt	Annual GIC (~11%)	Old after-tax cost	New after-tax cost	Extra cost
$100,000	$11,000	$8,250	$11,000	+$2,750
$250,000	$27,500	$20,625	$27,500	+$6,875
$500,000	$55,000	$41,250	$55,000	+$13,750

The GIC rate of ~11% was already high. Without deductibility, it is now unambiguously the most expensive debt most taxpayers will ever carry — more expensive than credit cards for high-income earners who previously deducted it.

Transitional rules

GIC/SIC incurred	Deductible?
Before 1 July 2025	Yes — claim in the relevant income year
On or after 1 July 2025	No — not deductible in any year

The cutoff is when the charge is incurred, not when the underlying debt arose. GIC accrues daily, so even if your tax debt existed before 1 July 2025, any GIC accumulating from that date onward is non-deductible.

There is one upside to the change: if the ATO later remits (reduces or cancels) GIC or SIC that was non-deductible, you no longer need to include the remitted amount as assessable income. Previously, remitted GIC had to be included in your income because you’d already claimed it as a deduction.

Who is most affected

Small businesses with cash flow issues — Sole traders and small companies that rely on ATO payment plans to manage timing gaps
Individuals with amended assessments — If the ATO audits you and issues an amended assessment with SIC, there’s no deduction to soften the blow
Property investors with large tax bills — Those who under-estimate PAYG instalments and carry a balance
Anyone using ATO debt as cheap financing — This strategy no longer works. The effective rate is now the full ~11%, not the ~6-7% after-tax rate it used to be

What you should do

1. Pay outstanding ATO debt as soon as possible

Every day you carry ATO debt costs ~11% p.a. with no tax relief. Compare this to:

Debt source	Interest rate	Tax deductible?	Effective after-tax rate (37% bracket)
ATO GIC	~11.36%	No	11.36%
Business loan	~7-9%	Yes (if business)	~4.3-5.5%
Home equity	~6-7%	No	6-7%
Credit card	~20%	No	20%

ATO debt is now more expensive than most business loans after tax. If you have access to cheaper finance, consider refinancing the ATO debt.

2. Prioritise accurate BAS and PAYG lodgement

The best way to avoid GIC is to lodge and pay on time. If you know you’ll have a shortfall:

Vary your PAYG instalments to better match expected income
Lodge BAS on time even if you can’t pay — this avoids the failure-to-lodge penalty on top of GIC
Contact the ATO early to arrange a payment plan before interest accumulates

3. Request GIC remission if you have a good reason

The ATO has discretion to remit GIC in certain circumstances:

Natural disasters or serious illness
ATO delays or errors that caused the late payment
Reasonable reliance on incorrect ATO advice
First-time compliance failure with otherwise good history

Remission is not guaranteed, but it’s always worth requesting if you have a genuine reason for late payment.

4. Review your tax agent’s lodgement schedule

If your tax agent is lodging late (even within the extended agent deadlines), the resulting GIC is no longer offset by a deduction. Ensure your agent is lodging as early as practicable.

Key takeaways

GIC and SIC incurred from 1 July 2025 are no longer tax deductible
The effective cost of carrying ATO debt has increased by 25–39% depending on your tax rate
At ~11% with no deduction, ATO debt is now more expensive than most alternative finance
Pay down ATO debt as a priority, or refinance with cheaper sources
Lodge and pay on time to avoid GIC entirely
If GIC is remitted after 1 July 2025, the remitted amount is not assessable income

Estimate your tax liability accurately

Use the Income Tax Calculator to forecast your annual tax so you can plan payments and avoid ATO interest charges.