EXPENSES • 27 JUNE 2025 • 1 MIN READ
Changes to tax-deductibility of ATO interest charges from 1 July 2025
The Australian Government announced in the 2023-2024 Mid Year Economic and Fiscal Outlook that it would amend the tax law to remove tax deductibility for ATO interest charges.
This has now passed into law.
What does this apply to?
The change of rules applies to General Interest Charges and Shortfall Interest Charges incurred on or after 1 July 2025.
- General Interest Charge (GIC) - a charge on unpaid tax and superannuation liabilities. Essentially, a penalty for not paying your tax on time.
- Shortfall Interest Charge (SIC) - a charge that applies when there’s a shortfall in your tax due to an amended assessment. This is like a penalty for underestimating your tax liability.
Who does this affect?
This change impacts taxpayers who have unpaid tax debts or expect to have tax shortfalls.
The timing of the charges imposed on the debt and/or shortfalls is also important:
- If you have incurred a GIC or SIC before 1 July 2025, then it remains tax-deductible in your 2024/25 tax return or prior years.
- If you incur a GIC or SIC on or after 1 July 2025, then it is not tax-deductible regardless of whether the debt relates to an earlier financial year.
Important: General Interest Charges are incurred daily, so if you currently have this imposed on tax debt, you might want to consider clearing as much of the debt as possible before the interest is no longer tax-deductible.
What should you do if this applies to you?
With this change, managing tax becomes more crucial.
In the first instance, try and reduce existing tax debt as fast as possible. This will reduce the interest charges incurred, and coincidentally a reduction in non-deductible costs in your 25/26 tax return.
Once existing debt is managed, ensure you have reporting systems and cashflow planning setup to allow for on-time lodgements and payment of tax liabilities going forward. This will help avoid any interest charges being imposed in the first place.
Then, if there is unavoidable tax debt or shortfalls, ensure you engage with the ATO early to discuss options like payment plans or voluntary disclosures (in the case of needing to amend past returns).
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