A Quiet Revolution in Accounting
As of 1 July 2025, taxpayers will no longer be able to claim tax deductions for ATO interest charges—specifically General Interest Charges (GIC) and Shortfall Interest Charges (SIC)—on your tax return.
If you currently have a debt with the ATO or are considering entering into payment plans with the ATO then this guide is for you. We break down below what these charges are, how they’re calculated, and options to consider with regards to these debts.
What You Need to Know About the Cutoff Date
As of 1 July 2025 any interest (SIC or GIC) incurred on or after this date will no longer be claimable as a deduction. It’s the date the interest charge is incurred (not when it’s paid) that determines deductibility.
| For example: If a GIC charge starts accruing on 30 June 2025 and you pay it in September, it is still deductible. But if it starts accruing on 1 July 2025, it’s not deductible—regardless of whether the related debt came from an earlier tax year. |
In Further Detail
What Are GIC & SIC Interest Deductions?
Previously, the Income Tax Assessment Act 1997 allowed taxpayers to claim a deduction for certain ATO interest charges. These included:
- General Interest Charges (GIC): Applies to various unpaid tax and superannuation liabilities (currently 11.17%).
- Shortfall Interest Charges (SIC): For underpaid tax identified after lodgement it is due 21 days after an amended assessment is issued (currently 7.17%)
These were collectively known as ATO interest deductions. But starting July 1, 2025, these deductions will be removed under a Federal Government amendment.
What Are ATO Interest Charges?
If you pay your tax late (eg you enter into a payment arrangement to pay off your debt over a period of time) or if you have an amended income tax return from a prior year that increases your tax payable, you will be liable for an interest charge. The interest rate is based on a quarterly interest rate announced by the ATO and accrues on a daily basis.
What are the recommended options post 1 July 2025
We recommend that business taxpayers who may be able to obtain a general deduction for interest expenses on borrowings to fund business tax debts take action as soon as possible. Options to be considered include:
- Pay off existing ATO arrangements if cash flow permits
- Consider whether payment plans can be re-financed to a commercial loan or overdraft facility
- If payment plans can’t be paid out or re-financed consider whether they can be accelerated to reduce the interest cost
- Discuss whether there are any mitigating circumstances that would enable our office to apply for a remission of the interest charge
We recommend that from 1 July 2025 ATO payment arrangements will be a last resort and client’s should review their cash flow position to ensure that the cost of carrying non-deductible ATO debt does not significantly increase your tax costs.
If you would like to discuss your outstanding ATO liabilities and options in relation to these please contact Hall Browns Accountants on 07 3831 1055.
Disclaimer
This article is general in nature and not intended as financial advice. For personalised recommendations, please consult a professional accountant or visit our resources page for more information.