Starting 1 July 2025, taxpayers will no longer be able to claim income tax deductions for interest charges imposed by the Australian Taxation Office (ATO), including the General Interest Charge (GIC) and Shortfall Interest Charge (SIC). This change was introduced in the 2023–24 Mid-Year Economic and Fiscal Outlook and is now law under the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025.

What Does This Mean?

Previously, interest incurred on unpaid tax liabilities or amended assessments could be claimed as deductions in your income tax return. From 1 July 2025 onward, any GIC or SIC incurred will no longer be deductible—regardless of whether the debt relates to an earlier income year.

This change applies to individuals, businesses, and entities with substituted accounting periods (SAPs), starting from their next accounting period after 1 July 2025.

Note: The GIC rate currently sits at 10.78% for the July–September 2025 quarter, making tax debts significantly more expensive without the relief of a tax deduction.

What You Can Do

Pay Off ATO Debts Promptly

The most effective way to avoid non-deductible interest is to settle outstanding tax debts before they begin accruing GIC or SIC. This includes GST, PAYG withholding, and income tax obligations. Adjust your cash flow planning to prioritise these payments.

Request Interest Remission

In certain circumstances, you may be eligible to request a remission of interest charges. The ATO considers factors such as whether the delay was beyond your control, if you acted reasonably and in good faith, and whether you’ve made efforts to resolve the debt promptly. If the ATO agrees to remit the interest, and it was previously deductible, the remitted amount must be included in your assessable income in the year of remission.

💡 Additional Insights

• This change aligns with the government’s broader integrity measures aimed at discouraging the use of the ATO as a source of low-risk credit.
• ATO payment plans still accrue interest. Even if you enter into a payment arrangement, GIC will continue to accrue—now without the benefit of deductibility.
• Consider timing for large assessments. If you anticipate a large tax liability (e.g., from a trust distribution or capital gain), it may be worth pre-paying or lodging early to avoid interest altogether.
• Remission is not automatic. Keep records of any delays or circumstances that may support your case, such as illness, natural disasters, or administrative errors.

📚 Further Reading

ATO Reminder on Interest Deductibility Changes from 1 July

For more information, contact La Source Advisory below