Denying deductions for ATO interest charged from 1st July 2025

As seen in Woopi News May 2025

In December 2023 as part of the mid year Economic and Fiscal Outlook our government announced it would amend the tax law to deny income tax deductions for ATO interest charges. As with many announcements made by our government it can take months or even years for the suggested changes to either be scrapped or become law. This measure is now law, which means from 1st July 2025 taxpayers can no longer claim a deduction for interest charged by the ATO, this includes general interest charged (GIC) and Shortfall Interest Charged (SIC) applied to an ATO debt on or after 1st July 2025 (2026 Financial Year). Any interest incurred on or before 30th June 2025 will remain deductible, and if later remitted must be included in assessable Income.

The ATO’s General Interest Charge (GIC) is calculated daily, and the interest rate is updated quarterly, it is currently 11.17%. This rate applies to most types of ATO debt including debt that originated from income tax, fringe benefits tax, goods and services tax (GST) and pay as you go (PAYG) withholding or instalments.

The ATOs Shortfall Interest Charge (SIC) relates to the interest charged on tax shortfalls that arise from tax returns being amended, the interest rate is updated quarterly and is currently 7.17%.

Question: What if you finance ATO debt into your existing business overdraft or take out a new loan to pay your ATO debt, will the interest on the bank loan be tax deductible? The short answer is yes, but taxpayers need to keep clear records to prove that the purpose of the loan was directly related to managing their tax affairs and remember, it is important to seek advice from an accountant that is tailored to your specific circumstances, to ensure that the best outcome is achieved.