Compliance
Navigating Compliance: Changes to Interest Deductibility & Debt for Tax Debtors from 1 July 2025
Examining the law change that eliminates tax deductibility of General Interest Charges, and what individuals and businesses should do to stay compliant.
By NomadicTax Research Team • 5-8 min read • November 24, 2025
## 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](https://www.ato.gov.au/media-centre/ato-reminder-on-interest-deductibility-changes-from-1-july?utm_source=openai))
### 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](https://www.ato.gov.au/media-centre/ato-reminder-on-interest-deductibility-changes-from-1-july?utm_source=openai))
### 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.
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## Interactions With Other Tax Rules
- Remission of GIC and General Interest Charges *still available* in certain hardship or exceptional situations. ([ato.gov.au](https://www.ato.gov.au/media-centre/ato-reminder-on-interest-deductibility-changes-from-1-july?utm_source=openai))
- 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.