Understanding the End of Tax Deductions for ATO Interest Charges
Introduction
From 1 July 2025, the Australian Taxation Office will no longer allow deductions for General Interest Charges (GIC) and Shortfall Interest Charges (SIC). This represents a significant shift in how businesses and individuals manage tax debts. For years, taxpayers relied on deductions for these charges to soften the impact of late payments or underpaid taxes. That option is about to end, and it is crucial to prepare now.
This blog explains what the change means, how it will affect you, and what steps you should take. It also outlines how Trinity Accounting Practice can help you prepare for the new rules.
What Are ATO Interest Charges?
General Interest Charge (GIC)
- Imposed when tax is not paid by the due date
- Applies to income tax, BAS, GST, superannuation, and other obligations
- Calculated daily and compounded
Shortfall Interest Charge (SIC)
- Applies when the ATO amends an assessment and finds you underpaid tax
- Covers the period between the original due date and the amended assessment
- Often applies to businesses and individuals after ATO reviews or audits
These charges are not penalties. They are interest designed to encourage timely payment and compensate the government for the late receipt of revenue.
What the Law Said Before 1 July 2025
Until 30 June 2025:
- GIC and SIC are deductible expenses
- Taxpayers can claim them on their tax return for the year in which the expense is incurred
- If the ATO later remits the charge, the remitted amount must be included as assessable income
This has allowed many businesses to reduce the net cost of late payments. For example, a $10,000 GIC bill could generate a deduction worth $3,000 if the business is in the 30% company tax bracket.
What Changes From 1 July 2025
From 1 July 2025:
- GIC and SIC are no longer deductible
- If incurred after this date, they cannot be claimed on your tax return
- If interest incurred before 1 July 2025 is remitted after that date, the remission remains assessable income
- If interest incurred after 1 July 2025 is remitted, there is no assessable income because no deduction was allowed
The change applies regardless of the year of income that the underlying tax relates to. Even if the charge relates to a 2023 return, if the GIC is incurred after 1 July 2025, no deduction is available.
Why Has the Law Changed?
The government introduced this change to:
- Discourage taxpayers from delaying payment of tax debts
- Ensure that ATO interest is treated differently from commercial interest expenses
- Increase revenue integrity by removing what they see as an unintended concession
The expected impact is tens of millions of dollars in additional revenue per year. For taxpayers, it means interest costs will rise sharply.
Example Scenarios
Scenario 1: Deduction Before 1 July 2025
A company incurred $5,000 in GIC in April 2025. The deduction is available on its 2024-25 tax return. Net cost after a 30% deduction = $3,500.
Scenario 2: Interest Incurred After 1 July 2025
The same company incurred $5,000 in GIC in August 2025. No deduction is available. Net cost = $5,000.
Scenario 3: Remission of Pre-1 July GIC
If the April 2025 charge of $5,000 is later remitted in October 2026, the remission is assessable income.
Scenario 4: Remission of Post-1 July GIC
If the August 2025 charge of $5,000 is later remitted, it is not assessable income.
Impact on Businesses
The removal of these deductions increases the effective cost of GIC and SIC:
- Interest rates are already high, ranging between 8% and 11% depending on the period
- Without a tax deduction, the effective cost rises by 25% to 30% for many businesses
- For some small businesses, it will be more expensive to carry a tax debt than to borrow from a bank or lender
The ATO applies GIC daily and compounds monthly. Over time, debts can grow quickly. With no deductions, the financial pressure is even greater.
If your business is carrying a tax debt, our business advisory team can help you assess the most cost-effective way to manage it before the deadline.
Impact on Individuals
For individuals:
- The deductibility of GIC often provides some relief when facing late payment interest
- From 1 July 2025, that relief is gone
- Taxpayers in the higher brackets (32.5% and 45%) will feel the biggest increase in net cost
Anyone with outstanding personal tax debts should aim to pay or refinance before June 2025 to lock in deductions while they are still available.
Why This Matters for Small Businesses
Small businesses are the group most exposed:
- Around 2.6 million small businesses operate in Australia
- Many use GIC deductibility as a way to manage cash flow when tax obligations are delayed
- The loss of deductibility will make it more important to pay on time or seek financing
If a business with a $50,000 tax debt delays payment for 12 months, the GIC could exceed $7,000. Without a deduction, the full cost is payable.
Alternative Financing Options
As ATO interest is no longer deductible, many businesses should consider alternatives:
- Business loans or overdrafts from banks
- Short-term financing arrangements
- Use of credit facilities with lower net costs
- Negotiating structured payment plans with the ATO
Interest on commercial loans remains deductible. In some cases, borrowing to pay tax may cost less after tax than carrying an ATO debt.
Our mortgage brokerage division, Nexus Wealth Partners Pty Ltd, can assist with refinancing options and business finance to help you manage these obligations.
The Role of ATO Payment Plans
The ATO does offer payment plans:
- These plans spread the repayment over time
- Interest may still apply, but the structure provides cash flow relief
- The ATO expects taxpayers to engage early rather than ignore debts
With deductibility ending, negotiating payment plans early will be essential. This may reduce GIC exposure and demonstrate good faith.
Remission of Interest
The ATO can remit GIC and SIC in cases of:
- Serious hardship
- Fair and reasonable circumstances outside your control
- Mistakes caused by the ATO itself
Remission is not automatic. Taxpayers must apply and justify the request. The trend in recent years has been towards fewer remissions, especially where the delay is within the taxpayer's control.
Compliance and Risk Management
The removal of deductibility is part of a broader trend. The ATO is tightening compliance across small business lodgement, cash flow management, and tax debt enforcement.
Interest is one of the ATO's most effective tools to encourage compliance. Without deductibility, the deterrent effect is even stronger.
Staying on top of your bookkeeping and BAS lodgements is the best way to avoid GIC exposure in the first place.
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Tax Planning Before 30 June 2025
You should take action now:
- Review any outstanding tax debts
- Pay GIC and SIC before 30 June 2025 where possible
- Consider refinancing with deductible commercial loans
- Lodge returns promptly to avoid unnecessary shortfall interest
- Plan cash flow to prevent debt accumulation in 2025-26
Acting before the deadline can save thousands of dollars in non-deductible costs.
How Trinity Accounting Practice Helps
Trinity Accounting Practice provides expert advice on:
- Tax planning for businesses and individuals
- Debt management strategies
- Cash flow forecasting
- ATO negotiations and remission applications
- Structuring finance to minimise costs
Our team has supported clients for over 22 years. We know how to navigate ATO rules and protect your position. Our business advisory and Virtual CFO services provide ongoing support to help you stay ahead of these changes.
Key Takeaways
- GIC and SIC remain deductible until 30 June 2025
- From 1 July 2025, they are no longer deductible
- Net costs will rise significantly for those carrying ATO debt
- Businesses and individuals should act now to manage obligations
- Professional advice is critical to minimise exposure
Final Word
The removal of deductions for ATO interest is not a minor adjustment. It will reshape how taxpayers manage late payments and tax debt. By planning ahead, you can avoid unnecessary costs and protect your business or personal finances.
Trinity Accounting Practice is here to guide you every step of the way. Book a free consultation with our team today.
Trinity Accounting Practice
Accounting Firm in Beverly Hills, Sydney
Phone: 02 9543 6804
Address: 159 Stoney Creek Road, Beverly Hills NSW 2209
Website: www.trinitygroup.com.au
Weekend and after-hours appointments available
Our Virtual CFO division, VCFO Australia, provides strategic financial management, budgeting, forecasting, and compliance support for growing businesses and not-for-profits.
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Disclaimer: Information provided on this website is intended as a general overview only and does not replace professional advice tailored to your personal circumstances.
