ATO Interest Is No Longer Tax-Deductible — Why That Changes the Maths
From 1 July 2025, the ATO's general interest charge stopped being deductible. Here's what that means for anyone carrying a tax debt — and the options.
A quiet but significant change took effect on 1 July 2025: interest the ATO charges on tax debts is no longer tax-deductible. If your business ever carries a balance with the ATO, this changes the maths on how you deal with it.
What changed
The general interest charge (GIC) and the shortfall interest charge (SIC) are the amounts the ATO adds when tax is paid late or an amount was understated. Previously these charges were deductible, which softened their real cost. For charges incurred on or after 1 July 2025, that deduction is gone.
Importantly, it's the date the interest is incurred that matters — not the year the underlying tax debt relates to. So even if a debt relates to an earlier income year, any GIC or SIC incurred on it from 1 July 2025 onwards is non-deductible.
Why this is a bigger deal than it sounds
The GIC rate has sat above 11%. Losing deductibility means the effective cost of carrying a tax debt is now meaningfully higher, because you're paying that interest with after-tax dollars. For many businesses, an ATO balance has quietly become one of the most expensive forms of finance they hold.
What you can do about it
The practical response is to stop treating the ATO as a line of credit. Where a business has a tax debt, refinancing it with a bank or commercial lender can sometimes make sense: interest on a genuine business loan may still be deductible where the borrowing is connected to your business activities, unlike GIC and SIC.
- Prioritise clearing ATO balances over cheaper, deductible debt
- Consider refinancing a tax debt where commercial interest may be deductible
- Lodge on time even if you can't pay in full, to limit charges and penalties
- Talk to us early about a payment arrangement rather than letting it build
Key takeaways
- GIC and SIC incurred from 1 July 2025 are no longer tax-deductible.
- It's the date the charge is incurred that counts, even for older debts.
- With rates above 11% and no deduction, ATO debt is now costly finance.
- Refinancing to deductible commercial debt may reduce the after-tax cost.
This article is general information current as at October 2025 and is based on published ATO guidance. Whether refinancing is right for you depends on your circumstances — please talk to us before acting.
Carrying a tax debt?
Entrust Accounting can help you weigh up payment arrangements and financing options so a tax balance costs you as little as possible.