ATO Interest Charges No Longer Tax Deductible from 1 July 2025
From 1 July 2025, important changes will come into effect regarding the way the Australian Taxation Office (ATO) applies interest charges —
specifically the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC). These changes will
significantly impact the tax treatment of businesses and individuals who have unpaid tax debts or amended assessments.
What are GIC and SIC?
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General Interest Charge (GIC): A daily-compounded interest charge applied by the ATO on unpaid tax liabilities after the
due date.
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Shortfall Interest Charge (SIC): Interest applied when the ATO corrects an underpayment of tax, calculated from the
original due date to the date of the amended assessment.
Until now, both charges have been deductible expenses for income tax purposes, which softened the impact of late payments. But that’s about
to change.
What’s changing from 1 July 2025?
The government has introduced new rules that remove the tax deductibility of ATO interest charges. Here’s what you need to know:
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No more deductions: From income years starting on or after 1 July 2025, GIC and SIC will no longer be deductible.
This applies even if the underlying tax debt relates to earlier years.
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Transition period: Any interest incurred before 1 July 2025 remains deductible. However, any amounts incurred on or after
this date must be claimed as non-deductible.
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Special rules for substituted accounting periods (SAPs): Businesses with non-standard year ends will see these changes
apply to their first income year starting after 1 July 2025.
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Current rates: For the July–September 2025 quarter, the GIC is set at 10.78% per annum, while the SIC is 6.78%
per annum — both compounding daily.
Why it matters?
This change will increase the after-tax cost of carrying ATO debt.
- Higher cost: Businesses and individuals can no longer offset interest against taxable income.
- Cash flow pressure: Longer-term payment plans with the ATO will now be more expensive.
- No margin for error: Late lodgements or amended assessments will likely come at a steeper price.
-
Behavioural shift: The government intends this change to encourage timely lodgement and payment of tax obligations.
Practical steps you can take...
To prepare for the change, consider these strategies:
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Review outstanding tax debts – Pay them off before 1 July 2025 where possible, while interest is still deductible.
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Check ATO payment plans – If your repayment arrangement extends beyond July 2025, reassess whether it’s better to
accelerate repayments.
- Stay on top of lodgements – Avoid unnecessary SIC by ensuring returns are accurate and on time.
- Forecast the impact – Build the higher after-tax cost of interest into your cash flow planning.
-
Seek professional advice – The timing rules can be complex, particularly for remitted interest or substituted accounting
periods.
Summary
From 1 July 2025, ATO interest charges (GIC and SIC) will no longer be deductible. This means taxpayers will bear the full financial impact
of late payments and amended assessments. Businesses and individuals should act now — review outstanding debts, update cash flow forecasts,
and speak with their tax advisor about the most effective strategies before the changes take effect.
