Important Tax Update – Interest Paid to the ATO No Longer Deductible from 1 July 2025

From 1 July 2025, interest charged by the Australian Taxation Office (ATO) – the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) – will no longer be tax deductible. This change applies to all taxpayers and affects interest incurred on or after this date, regardless of whether the debt relates to an earlier income year.

What this means for you

• No more deductions: GIC and SIC will become a direct cost to your bottom line, with no offsetting tax benefit.
• Pre-1 July 2025 interest remains deductible: Any GIC or SIC incurred before 1 July 2025 can still be claimed as a deduction in the relevant income year.
• Remitted interest is no longer assessable: If GIC or SIC incurred after 1 July 2025 is later remitted by the ATO, it will not need to be included in your assessable income.

Why this matters:

The ATO’s GIC is currently charged at 10.78% p.a. and compounds daily. Previously, the tax deductibility of this interest softened the financial blow of late payments. From 1 July 2025, however, these charges will hit harder – especially for businesses managing tight cash flow. This could mean an effective increase in interest costs of up to 89% for businesses and individuals on the top marginal rate of tax.

What you can do now:

1. Review existing ATO debts and pay down balances as soon as possible. Doing so will reduce the interest you will pay. If you can’t pay the debt in full, you may be able to set up a payment plan. Interest will continue to accrue if you are paying your ATO debt off through a payment plan, but as you make payments, the amount of interest you are charged will also decrease.
2. Consider refinancing ATO debts with commercial loans that might have a lower interest rate – interest on genuine business borrowings used to extinguish a tax debt can, in many cases, still be deductible. Individual taxpayers who are not carrying on a business will not be able to deduct interest on the refinanced ATO debt.
3. Plan ahead to avoid future reliance on ATO payment plans. Setting aside your GST, Pay as you go (PAYG) withholding and superannuation from your business’s cash flow in a separate bank account can help ensure you have the funds available when it’s time to pay.
4. Engage with us early to assess your exposure and explore tax-efficient strategies.

Please contact your trusted Ruddicks adviser if you have any questions about how this change may affect you or your business.

DISCLAIMER:

Liability limited by a scheme approved under Professional Standards Legislation.

The content of this newsletter is general in nature. It does not constitute specific advice and readers are encouraged to consult their Ruddicks adviser on any matters of interest. Ruddicks accepts no liability for errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice. This information is current as at 24 July 2025, and was published around that time.  Ruddicks particularly accepts no obligation or responsibility for updating this publication for events, including changes to the law, the Australian Taxation Office’s interpretation of the law, or Government announcements arising after that time. 

Any advice provided is not ‘financial product advice’ as defined by the Corporations Act.  Ruddicks is not licensed to provide financial product advice and taxation is only one of the matters that you need to consider when making a decision on a financial product. You should consider seeking advice from an Australian Financial Services licensee before making any decisions in relation to a financial product.  © Ruddicks 2025