As of 1 July 2025, interest charges imposed by the Australian Taxation Office (ATO) are no longer tax deductible. In practical terms, ATO interest is no longer deductible, making it more expensive for individuals and businesses to carry tax debt.
What’s Changed?
The Australian Government announced in the 2023–24 Mid-Year Economic and Fiscal Outlook that deductions for ATO interest charges would be removed.
From income years starting on or after 1 July 2025, you cannot deduct:
- General Interest Charge (GIC)
- Shortfall Interest Charge (SIC)
These charges are imposed on late or unpaid tax debts by the ATO.
What Can Still Be Claimed?
GIC or SIC incurred before 1 July 2025 remains deductible for the 2024–25 income year and earlier.
Important: If this interest is later remitted by the ATO, the remitted amount must be included in your assessable income. This means accurate record-keeping is essential. Businesses must track when interest was incurred and whether any remission has been granted to ensure correct tax treatment.
What Cannot Be Claimed?
❌ Any GIC or SIC incurred on or after 1 July 2025 is not deductible.
❌ This applies even if the tax debt relates to an earlier year.
❌ If the ATO later remits the interest, you do not include it in income.
Because ATO interest is no longer deductible after this date, businesses cannot rely on tax deductions to soften the impact of late payments.
Businesses with a Different Year-End
For entities using a substituted accounting period, the deduction is lost from their first accounting period starting after 1 July 2025.
Why This Matters
The fact that ATO interest is no longer deductible increases the effective cost of unpaid tax debts. In practical terms, this means:
- Payment arrangements may cost more over time
- Cash flow management becomes even more critical
- Lodging and paying on time delivers greater financial benefits
Good bookkeeping is no longer just about compliance — it is about protecting profitability. With the changes now in effect, businesses with outstanding tax debt or ATO payment arrangements should review their position and take steps to minimise ongoing interest costs.
Need Help Managing Your ATO Interest Charges?
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