Since July 2025, the rules have shifted for Australian business owners and individuals when it comes to claiming tax deductions on interest charged by the Australian Taxation Office (ATO). Historically, interest charges like the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) imposed by the ATO were tax deductible. This offered a small relief to those who found themselves facing delayed tax payments.
What Has Changed?
As of 1 July 2025, this is no longer the case. Under the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, you can no longer claim a tax deduction for GIC or SIC the ATO charges on late or underpaid tax. The change is in new subsection 26-5(1A) of the Income Tax Assessment Act 1997 and applies to income years starting on or after 1 July 2025. What matters is when the interest is incurred, not which year the debt relates to: GIC is incurred daily as it accrues, and SIC is incurred when the notice of amended assessment is issued. (Source: ATO)
Why Was ATO Interest Previously Deductible?
The logic was simple: ATO interest was treated as a cost of managing your tax affairs, so a deduction in the year it was incurred helped soften the blow if you found yourself on the wrong side of due dates. This included the GIC, which applies when tax is paid late, and the SIC, which applies to a shortfall when an assessment is amended to increase your tax.
Who Does This Change Impact?
Businesses: No deduction for GIC or SIC incurred on or after 1 July 2025, including interest on older debts
Individuals: You'll feel the same pinch, and the 2025–26 individual tax return no longer has a label for claiming ATO interest; plan ahead for your cash flow
Accountants/Tax Professionals: It's crucial to update your advice and communicate this change to all clients
Practical Impact:
If your business or you personally end up late with ATO payments, the interest is now a straight cost—you can't claim a deduction for it. This makes it more important than ever to pay taxes on time or negotiate with the ATO early if you're experiencing hardship.
Setting up a payment plan helps you manage the debt, but GIC keeps accruing on the outstanding balance until it's paid. For October–December 2026 the GIC rate is 11.51% a year and the SIC rate is 7.51% a year, and the ATO updates both every quarter. (GIC rates, SIC rates)
What can you still deduct?
Interest paid on business loans (for income-generating purposes)—YES
GIC and SIC incurred before 1 July 2025—YES, in the 2024–25 or earlier return for the year it was incurred
GIC and SIC incurred on or after 1 July 2025—NO, even if the tax debt relates to an earlier year
Interest on a loan taken out to pay a tax debt—generally NO for individuals; if you carry on a business it may be deductible, so get advice first
Remitted interest: if the ATO remits GIC or SIC that you deducted in 2024–25 or an earlier year, the remitted amount is assessable income in the year of the remission. Remitted GIC or SIC incurred on or after 1 July 2025 was never deductible, so it isn't assessable. (Source: ATO)
Warning: If you've been carrying an ATO debt on the basis that the interest was deductible, that no longer applies. Interest accruing on the debt now costs you its full amount, so it's usually worth paying the debt down or refinancing it sooner.
Takeaways and action points
Review outstanding ATO debt and clear it (or set up a payment plan) before more interest accrues
Update your internal processes or personal reminders for timely tax payment
Speak with your tax agent about other allowable deductions to optimise your tax position
How do I get help with this from the ATO?
The ATO provides guidance through ato.gov.au, the Small Business Support Line (13 28 66), and Online Services for individuals and businesses. For complex situations, a registered tax agent provides advice tailored to your specific circumstances and professional indemnity protection. You can verify agent registration at the TPB register at tpb.gov.au.
What records do I need to keep for tax purposes in Australia?
Most tax records must be kept for five years from the date of lodgement or the date the transaction occurred, whichever is later. Records must be in English or convertible to English and must be sufficient to explain the income and deductions in your return. The ATO can request records at any time during the retention period.
When do I need a registered tax agent in Australia?
Consider a registered tax agent when your affairs involve multiple income sources, business activity, investment properties, capital gains, or overseas income. Agents extend your lodgement deadline, provide safe harbour protection, and take professional responsibility for the advice given. Verify registration at tpb.gov.au.
How does the ATO calculate penalties for compliance failures?
The failure to lodge penalty is based on penalty units ($364 per unit from 1 July 2026), accruing per 28-day period for late returns and BAS lodgements. Incorrect information penalties range from 25% to 75% of the tax shortfall depending on whether the behaviour was careless, reckless, or intentional. Proactive disclosure before an audit begins typically results in significantly reduced penalties.
What is the difference between tax avoidance and tax minimisation?
Tax minimisation is the legal arrangement of your affairs to reduce tax — claiming all eligible deductions, using appropriate structures, and timing income and expenses. Tax avoidance involves arrangements that technically comply with the law but achieve outcomes parliament did not intend. The ATO can apply Part IVA anti-avoidance rules to cancel benefits from avoidance arrangements.
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