What’s the Change?
Starting 1 July 2025, General Interest Charges (GIC) or interest charged by the ATO on underpayments or late payments will no longer be tax deductible. The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025—now law—mandates this change. (ato.gov.au)
Who It Impacts
- Any taxpayer—individual or business—who incurs interest on tax debts, late or underpayment liabilities owed to the ATO, will be affected.
- Companies with non-June year ends will also feel the change from their next income year. (ato.gov.au)
Compliance Implications
This change is intended to:
- Encourage timely tax payment and lodgment.
- Reduce advantage for those delaying payment.
- Increase fairness, as before those who delayed payment could deduct interest, now they can’t.
Non-compliance risks increase where taxpayers do not adapt:
- Late payment plans may still incur interest, but can no longer count on deductions.
- Payment via loan financing with high interest may become less viable when the interest is non-deductible.
Actionable Steps to Stay Compliant
- Plan cash flow carefully: Ensure tax obligations—PAYG, GST, income tax—are met by deadlines when possible.
- Minimise tax debt: Pay early or on time; consider paying estimated amounts ahead of the year-end where possible.
- Use payment plans wisely, but remember that interest will still accrue—even if payments are arranged.
- Seek advice before entering into third-party funding or loans to cover tax debts, as the interest component may not provide tax relief.
Example
Tom, a small business owner, had an undeclared GST liability and defaulted PAYG instalments in 2024-25. Under old rules he deducted the GIC in his 2024-25 return. From 1 July 2025, similar interest on future tax debt (even accumulated on old liabilities) will no longer be deductible. This increases his cost of delaying payments.
Interactions With Other Tax Rules
- Remission of GIC and General Interest Charges still available in certain hardship or exceptional situations. (ato.gov.au)
- Deductibility of interest from non-ATO sources (e.g., business loans, mortgages) remains subject to usual rules, unaffected by this amendment.
Final Takeaways
If you owe tax or have a business with frequent tax liabilities, paying closer attention to due dates matters more than ever. Planning ahead, engaging with advisers, and avoiding tax debt will reduce risk—and costly non-deductible interest.