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.

For assessments for income years starting on or after 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.

For assessments for income years starting on or after 1 July 2025, this deduction has been removed entirely. For a taxpayer with a 30 June year-end that means the 2025-26 income year onwards. The change applies to GIC and SIC whichever income year the underlying debt relates to.

The legislation: Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 (Royal Assent 27 March 2025), inserting subsection 26-5(1A) into the ITAA 1997 (Schedule 2, with the application rule in item 4).

What are GIC and SIC?

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)

For companies (25% base rate)

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

The Act applies the denial to assessments for income years starting on or after 1 July 2025, not to interest by the date it accrues. For a 30 June year-end that is the same as 2025-26 onwards; it can differ if you have a substituted accounting period. Even if your tax debt existed before 1 July 2025, GIC and SIC in those later income years are 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:

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 are no longer tax deductible for assessments for income years starting on or after 1 July 2025
• 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 non-deductible GIC is remitted, the remitted amount is not assessable income

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