Compliance
How the New Non-Deductibility of ATO Interest from 1 July 2025 Affects Your Business
Australia has changed tax law so that **interest charges from the ATO, such as the General Interest Charge (GIC)**, are no longer tax deductible from 1 July 2025—this article explains the implications and how you can plan to minimise costs.
By NomadicTax Research Team • 5-8 min read • April 1, 2026
## 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](https://www.ato.gov.au/media-centre/ato-reminder-on-interest-deductibility-changes-from-1-july?utm_source=openai))
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](https://www.ato.gov.au/tax-and-super-professionals/for-tax-professionals/tax-professionals-newsroom/changes-to-deductibility-of-interest-on-ato-debts?utm_source=openai))
## 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.