Understanding the Change
From 1 July 2025, all General Interest Charge (GIC) and Shortfall Interest Charge (SIC) amounts imposed by the ATO are no longer tax deductible, regardless of when the underlying year’s liability arose. This is under the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025. (ato.gov.au)
Previously, GIC or SIC incurred before that date could reduce your taxable income through deductions. That benefit has now been removed for amounts from 1 July 2025 onwards. (ato.gov.au)
Implications for Different Taxpayers
| Type | How It's Affected |
|---|---|
| Individuals or small businesses with past ATO debt | Interest charges still deductible if incurred before 1 July 2025. |
| Businesses or individuals with current or ongoing debts | Interest incurred after 1 July 2025 is not deductible, increasing total after-tax cost. |
| Tax professionals advising clients | Must review cash-flow and liability forecasts, update models, warn clients of increased debt costs. |
Actionable Planning Strategies
- Pay down outstanding ATO debts before 1 July 2025 where possible, to preserve deductibility of interest incurred before that date.
- Set up payment plans and clear overdue liabilities quickly. Even though interest will still accrue, faster repayment reduces total interest paid.
- Budget for higher after-tax costs of debt when borrowing or considering deferring tax payments. This change is similar to losing a business expense deduction.
- Reassess financing arrangements: For businesses considering third-party finance to pay tax debts, compare interest rates on that finance versus the accrual of GIC/SIC over time. Sometimes external financing at lower interest might cost less overall.
Practical Example
Imagine Business A has a tax debt of AUD $100,000 due by 31 July 2025. Under current GIC (say, 11.17% annually compounded), carrying that for 6 months costs ~AUD $5,576 in interest (before tax). Under old rules, that was deductible—if Business A pays tax at 30%, it saved around $1,673 in tax. From 1 July 2025, the entire interest cost becomes net cost—no tax offset.
Key Takeaways
- The change is high impact for any taxpayer with outstanding ATO debts as of or after 1 July 2025.
- Getting ahead by paying debts or planning finance can reduce expenses.
- Consult with your approved tax professional to run models specific to your situation.
By understanding these changes now, you can adjust your cash-flow, avoid unnecessary costs, and make tax debt more manageable going forward.