From 1 July 2025, a major tax change will take effect in Australia that will impact thousands of individuals and businesses. The Federal Government has announced that interest charges applied by the Australian Taxation Office (ATO), namely the General Interest Charge (GIC) and Shortfall Interest Charge (SIC), will no longer be tax deductible.
This decision alters a longstanding practice where ATO interest was treated as a deductible expense, and it is important for taxpayers to understand what this means for their financial obligations. Whether you’re an individual taxpayer, a small business owner, or an accountant helping clients navigate tax rules, staying informed is essential.
In this article, we answer the most frequently asked questions surrounding the change and explain what you need to know about ATO interest 2025, GIC tax rules, SIC deductibility, and what to expect in the lead-up to and after 1 July 2025.
What is ATO Interest?
The ATO charges interest in two main ways:
- General Interest Charge (GIC): Applied when tax obligations (such as income tax, BAS, or superannuation guarantee payments) are paid late.
- Shortfall Interest Charge (SIC): Applied when the ATO amends a taxpayer’s assessment and it results in a tax shortfall.
Historically, these interest amounts have been deductible for both individuals and businesses. However, that’s about to change.
What Taxpayers Need to Know About GIC and SIC Deductibility Changes
Here are the key things you should know:
- The change applies from 1 July 2025.
- GIC and SIC will no longer be deductible, regardless of the cause or context.
- The change is not retrospective – past deductions are safe.
- Individuals, sole traders, companies, and trusts are all impacted.
- This may increase the real cost of tax debt, particularly for businesses with recurring late payments.
Taxpayers should consider strategies to clear outstanding ATO debts before the end of the 2024–2025 financial year.
FAQs About ATO Interest No Longer Being Deductible
Here are some ATO interest FAQs to help you better understand the change:
1. Why is the government removing tax deductions for ATO interest?
Why are GIC and SIC no longer deductible? The Federal Government announced this change as part of its broader tax integrity reforms. According to the Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2025, this measure is expected to improve the budget by curbing what is viewed as favourable treatment for late tax payments.
The rationale is to remove what has been perceived as an incentive to delay paying tax debts. By eliminating the deduction, the government intends to encourage more timely tax payments and level the playing field for those who pay tax in a timely manner.
2. When does ATO interest stop being tax-deductible?
From 1 July 2025, interest charges applied by the ATO, both GIC and SIC, will no longer be deductible for income tax purposes. This means deductions can only be claimed on GIC or SIC accrued up until 30 June 2025.
3. Is ATO interest still tax-deductible in 2025?
Yes, but only partially. For the 2024–2025 financial year, taxpayers can still claim deductions on GIC and SIC incurred before 1 July 2025. After that, from 1 July 2025 onwards, no part of GIC or SIC will be deductible, regardless of when the debt originated.
4. Will GIC and SIC be tax-deductible after July 2025?
No. From 1 July 2025, the GIC and SIC will be treated as non-deductible expenses, similar to penalties or fines. This includes all new interest charged after that date, as well as ongoing interest applied to existing tax debts.
5. Can I still claim past ATO interest as a deduction?
Yes. You can still claim GIC and SIC charges incurred up to 30 June 2025 on your 2024–2025 tax return, assuming they relate to your assessable income or business activity.
6. Will prior GIC and SIC payments still be deductible?
Yes – anything already incurred and claimed remains unaffected. This change is not retrospective, so there is no impact on prior-year tax returns or historical deductions already lodged and accepted.
7. Are ATO interest charges still deductible for businesses?
Until 30 June 2025, yes. Businesses can continue to claim ATO interest as a deductible expense on their 2025 tax return if the interest relates to business income. However, starting 1 July 2025, even businesses will lose the ability to deduct GIC and SIC. This includes interest applied to overdue GST, PAYG withholding, fringe benefits tax, and other tax liabilities.
8. What should I do if I have unpaid tax debt before July 2025?
If you have outstanding ATO debts, now is the time to act. Here are your options:
- Pay down the debt before 30 June 2025 to ensure any related interest remains deductible.
- Negotiate a payment plan with the ATO and make larger payments before July 2025 if possible.
- Refinance or consolidate debts, tax debt loans are specifically designed to payout outstanding ATO debt.
9. Can I claim GIC on my 2024–2025 tax return?
Yes. If the interest was incurred before 1 July 2025, you can include it in your deductions for the 2024–2025 income year. Make sure you keep accurate records and statements from the ATO showing the interest amounts and the dates they were charged.
10. Are there any exceptions or carve-outs?
As of now, no exceptions have been announced. The legislation applies universally across all taxpayers, including:
- Individuals
- Sole traders
- Partnerships
- Companies
- Trusts
- Superannuation funds
If future amendments or exemptions are introduced, they will be published on the ATO website or via Treasury announcements. For now, all GIC and SIC will become non-deductible from 1 July 2025.
How to Prepare for Non-Deductible ATO Interest
Taxpayers and advisers can take proactive steps in preparation for this change:
1. Review existing ATO debts
If you or your business currently owes the ATO, assess how much GIC or SIC you’re incurring and whether you can repay before 1 July 2025 to claim a deduction on your 2025 return.
2. Engage with a tax adviser
Understanding the tax implications of your interest charges is important. Tax professionals can help you correctly allocate GIC and SIC between pre- and post-1 July 2025 interest, especially in the transitional year.
3. Budget for non-deductible interest
From 2025–26 onwards, any ATO interest will increase your effective tax liability since it can no longer offset your assessable income.
4. Reassess your compliance calendar
Missing deadlines for BAS, PAYG instalments or tax returns will now have even more costly consequences. Consider strategies like payment reminders to avoid incurring non-deductible charges.
5. Consider Tax Debt Financing
Tax debt loans specifically tailored for dealing with tax debts can help you prepare and pay off all obligations to the ATO before the deductibility changes apply.
Can Tax Debt Loans Help Manage ATO Interest Charges?
With the deductibility of ATO interest charges ending from 1 July 2025, many businesses and individuals are exploring alternative strategies to manage or eliminate their tax debts. One popular option is a tax debt loan.
What is a Tax Debt Loan?
A tax debt loan is a form of finance that allows you to pay off your outstanding tax obligations to the ATO in full, and then repay the lender in structured instalments. This can be especially useful when you’re facing:
- Large tax bills with accumulating GIC or SIC
- Cash flow constraints that make lump-sum payments difficult
- The risk of enforcement action by the ATO (such as garnishee notices or director penalty notices)
How Tax Debt Loans Can Help:
- Avoid non-deductible ATO interest: A loan with a lower interest rate may reduce your total cost.
- Protect cash flow: Structured repayments give you flexibility to manage business operations without sudden cash hits.
- Maintain a clean record: Paying off your ATO debt can improve your standing with the tax office, reduce compliance risks, and avoid penalties.
At Dark Horse Financial, we help businesses access tax debt loans tailored to their needs. We understand the urgency and sensitivity of tax debt, and we work quickly to source funding that helps you regain control of your finances.
Final Thoughts
This shift in tax treatment of ATO interest may seem subtle, but could have a substantial impact on cash flow and tax strategy, particularly for businesses that manage complex tax obligations or rely on payment deferrals.
Removing the deductibility of GIC and SIC from July 2025 highlights the government’s broader objective of encouraging the timely payment of tax debts.
Here’s what you can do:
- Act now to minimise the cost of interest deductions being phased out.
- Review tax debts and repayment strategies before the end of the 2024–25 financial year.
- Seek professional advice if you are unsure how to proceed.
- Consider tax debt loans to deal with ATO obligations before GIC and SIC become non-deductible.
By being proactive, you can reduce your future exposure to non-deductible interest and ensure that your tax position is as efficient as possible under the new rules.
Clear Your Tax Debts In Time
For tailored advice on tax debt loans, refinancing, or debt consolidation solutions, contact Dark Horse Financial today. We specialise in helping Australian businesses manage their tax obligations and access funding when they need it most.
Disclaimer: The information provided on this page is general in nature and does not constitute financial, taxation, or legal advice. It does not take into account your personal circumstances, objectives, or needs and should not be relied upon for any reason. Before making any decisions, you should seek independent professional advice tailored to your specific situation.
