11 July

ATO Interest Charges No Longer Tax Deductible from 1 July 2025

If you have a tax debt with the Australian Taxation Office (ATO), you may soon face a higher cost. From 1 July 2025, interest charges applied by the ATO will no longer be tax deductible — regardless of whether the debt relates to personal or business income.

This change impacts both individuals and businesses, though the implications and options available can differ.

What interest charges are affected?

There are two key types of ATO interest charges:

General Interest Charge (GIC) – Applied when tax is paid late. This daily-compounding charge is designed to encourage timely payments. The GIC rate for the July to September 2025 quarter is 10.78%.
Shortfall Interest Charge (SIC) – Imposed when a tax shortfall arises due to an amended or corrected tax assessment. It also compounds daily. The SIC rate for the same quarter is 6.78%.

What is changing?

Under the current rules, both GIC and SIC are generally tax deductible, reducing the effective after-tax cost of these interest amounts for taxpayers with a tax liability.

However, from 1 July 2025, these interest charges will no longer be deductible, even if they relate to a tax debt incurred in an earlier income year.

This means:

Individuals will no longer be able to claim a tax deduction for GIC or SIC relating to late payment of tax or amended assessments.
Businesses will also lose the deduction for these interest charges, increasing the true cost of managing tax debts.

Example comparison

Consider two taxpayers with a $1,000 GIC liability:

Sally (individual) has a marginal tax rate of 45%. Under current rules, she can claim a $450 deduction, reducing her net cost to $550. From 1 July 2025, no deduction is allowed, and her full cost will be $1,000.
Adam (individual) has a marginal tax rate of 30%. His net cost under current rules is $700. After 1 July 2025, this increases to $1,000 due to the loss of the deduction.

For businesses, the loss of deductibility also increases the after-tax cost of interest — particularly for companies or trusts with consistent profits, where tax is payable at the company rate (usually 25% or 30%).

What can individuals do?

If your tax debt relates to personal income (such as salary, investment income or capital gains), the options to reduce the cost of GIC or SIC are limited. The best strategy is to pay the ATO as quickly as possible to stop interest from accruing.

You may consider borrowing to pay the tax debt, but in most cases, interest on borrowings used to pay personal tax liabilities is not deductible. This means the benefit depends entirely on securing a lower interest rate than the GIC.

What can businesses do?

Businesses should also aim to pay ATO debts promptly. However, there is a key distinction:

In some cases, interest on a loan used to repay business-related tax debts may remain deductible under general tax principles. This typically applies where:

The tax debt relates to business income; and
The loan is taken out to meet working capital or cash flow obligations.

You should seek professional advice before relying on this, as deductibility will depend on the purpose and structure of the borrowing.

While the ATO may accept a payment plan, GIC continues to accrue during the arrangement — and from 1 July 2025, this cost is no longer deductible.

Planning ahead

The most effective approach — for both individuals and businesses — is to plan for tax obligations in advance.

This includes:

Setting aside funds regularly for upcoming income tax, GST, superannuation guarantee and PAYG withholding liabilities.
Keeping tax provisions in a dedicated account to ensure funds are available when needed.
Lodging activity statements and tax returns on time to avoid triggering penalties or interest.

Need support?

If you currently have a tax debt or would like to implement better systems to manage your obligations, we are here to assist.

Let us work with you to reduce unnecessary costs, protect your cash flow, and keep your tax affairs in good order.