What’s the Change?
Under the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, interest incurred due to late tax payments or underpayments (i.e. the General Interest Charge, GIC) will no longer be tax deductible as of 1 July 2025. (ato.gov.au)
Even if the liability relates to an earlier income year, once the GIC accrues on or after 1 July 2025, it cannot be deducted. (ato.gov.au)
Implications for Businesses and Individuals
- Cashflow: Carrying tax debt comes with higher net cost once interest on that debt is no longer deductible. Plan to pay on time.
- Tax planning: Previously, some deferred tax obligations or underpayments might have been strategically timed; now GIC must be managed more proactively.
- Reassessment risk: If you claimed deductions for interest that includes amounts that later become GIC-related, ensure compliance with new rules to avoid later adjustments.
Real-World Examples
| Scenario | Before July 1 2025 | After July 1 2025 | Difference in Deductibility |
|---|---|---|---|
| Individual late lodgment with interest penalty | Deductible in the year assessed (if accrued before effective date) | Not deductible once interest is charged after 1 July 2025 | Loss of deduction on interest for same dollar amount |
| Company underpayment of PAYG or GST with GIC | Could reduce taxable income | GIC portion post-1 July is not deductible | Larger than anticipated tax cost |
What You Should Do Now
- Review your current tax debts and underpayments: if interest has yet to accrue, bring payments forward if possible.
- Align your cashflow planning: prioritize clearing overdue liabilities before GIC accrues post-1 July 2025.
- Keep accurate records of when payments are made and interest begins.
- Consult a tax professional where you have large underpayments or debt to assess exposure under the new rules.
By being proactive and aware of these changes, individuals and businesses can avoid surprises and reduce unnecessary tax costs associated with delays in payment or compliance lapses.