ATO Interest Charges No Longer Tax Deductible from 1 July 2025

A Significant Tax Change Ahead

From 1 July 2025, interest charges on unpaid tax debts — including the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) — will no longer be tax deductible.

This marks a major shift for both individuals and businesses who have previously been able to claim these interest charges as tax deductions, effectively reducing the cost of late tax payments. The change is being implemented under the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share) Act 2023.

Read the ATO’s official announcement

Who Does This Affect?

Individuals

• Interest charges on unpaid personal tax will no longer be deductible.
• Loans used to pay off personal tax debts remain non-deductible, as always.

Businesses (Companies, Trusts, Sole Traders)

• ATO interest on unpaid business tax will also lose deductibility from 1 July 2025.
• Interest on commercial loans used to repay business tax debts will remain deductible, provided the loan is directly connected to income-producing activities.

What’s the Financial Impact?

The ATO’s interest rates are not trivial — the current GIC is over 11% per annum, and it compounds daily.

For example, a business with a $60,000 tax debt accruing $6,600 in GIC annually would previously have reduced its taxable income by claiming the interest. From 1 July 2025, this is no longer an option. That $6,600 becomes a direct, non-deductible hit to the bottom line.

ATO Interest Rates (Current GIC and SIC)

Strategic Steps You Can Take Now

This change is an opportunity to get ahead of your tax obligations. Here are three practical strategies:

1. Clear or Reduce Existing ATO Debts

Pay down tax debts before 1 July 2025 to retain the deductibility of any interest incurred before the rule change.

2. Consider Refinancing Through Commercial Lenders

For businesses, replacing ATO debt with a bank loan may allow the interest to remain deductible — but only if the purpose of the debt is clearly linked to business income production.

3. Review Cash Flow and Payment Arrangements

Speak with your accountant to revise existing ATO payment plans, ensure timely lodgement of BAS and tax returns, and assess the tax efficiency of how you’re managing liabilities.

What’s the Purpose of This Policy?

The government’s goal is to discourage reliance on the ATO as a source of informal financing. By removing deductibility, they’re encouraging more timely tax payments — and aiming to level the playing field between taxpayers who meet obligations on time and those who delay.

Further information on policy intent (ATO)

Final Thoughts

This is more than just a legislative tweak — it’s a fundamental change to the way tax debt is treated from a financial planning perspective.

At Holmans, we’re already working with clients to assess the impact and adjust their strategies accordingly. If you carry ATO debt or expect to, this is the time to act.

Contact your Holmans advisor as early as possible to review your options and avoid unnecessary tax costs in the new financial year.

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Disclaimer: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.

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Holmans Noosa: (07) 5430 7600 or email info@holmans.com.au
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