ATO Interest Charges No Longer Tax-Deductible

From 1 July 2025, interest charges imposed by the Australian Taxation Office (ATO) will no longer be deductible for income tax purposes. This includes both the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) amounts.

This change forms part of the new Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, which was passed with the intention to improve the integrity of the tax system and ensure fairness among taxpayers.  

Under general tax rules, certain business taxpayers may still be able to claim a deduction for interest on loans used to refinance tax debts, provided the borrowed funds are used in the course of running their business. However, individuals not carrying on a business will no longer be eligible to claim such deductions, meaning the cost of leaving tax debts unpaid can rise sharply. For those on the top marginal tax rate, relying on the ATO as a source of credit could effectively double the cost compared to traditional financing.

Who Is Affected?

This measure applies to all taxpayers, including:

• Individuals

• Companies

• Partnerships

• Trusts

• Superannuation funds

  
  

What Does This Mean?

• From 1 July 2025, taxpayers will no longer be able to claim a tax deduction for any GIC or SIC amounts incurred.

• ATO Interest charges incurred prior to this date will remain deductible in the income year they were incurred.

• If any of these earlier charges are later remitted by the ATO, the remitted amount must be reported as assessable interest income in the year it is remitted.

  
  

Why the Change?

The policy is designed to encourage timely tax payments and prevent tax deferral strategies that rely on deducting interest charges. As noted by the ATO, this ensures that “taxpayers who do the right thing by paying on time are not disadvantaged”.

Practical Implications

Without deductibility, the effective cost of ATO interest will increase. For example, while the GIC rate as of July 2025 is 10.78%, the after-tax impact will be higher than previous years when deductions were allowed.

What Should You Do?

• Review and settle any outstanding tax debts where possible.

• Speak to us about strategies to manage cash flow and avoid unnecessary GIC or SIC charges.

• Consider ATO payment plans to manage obligations while staying compliant.

If you have any questions about how this change may impact your business or personal tax affairs, contact our office for tailored advice.