Quick answer
Two ATO interest charges stopped being tax deductible on 1 July 2025: the general interest charge (GIC), and its counterpart for amended assessments, the shortfall interest charge (SIC). What counts is the date each charge accrues, so a charge that builds up after that date is caught even when the tax itself belongs to an earlier year. The after-tax cost of leaving an ATO balance unpaid has risen as a result, which is why many owners are paying it out sooner or replacing it with business finance.
Key points
- No deduction for any GIC or SIC charged from 1 July 2025
- It applies even when the debt relates to an earlier income year
- GIC accrues daily and compounds, including on payment plans
- Remitted pre-July 2025 charges you deducted become assessable income
- Some business loan interest may still be deductible — ask your accountant
For years, an overdue ATO debt carried a quiet consolation: the interest the ATO charged on it could be claimed back as a tax deduction. That softened the blow enough that plenty of businesses treated the ATO as a slow-paying, expensive but tolerable line of credit.
That consolation is gone. From 1 July 2025 onward, interest the ATO charges can’t be written off as a deduction. If your business is still carrying a tax debt, it is now costing more than it did — and the gap widens every day the debt sits there.
What exactly changed on 1 July 2025?
The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 removed the income tax deduction for two ATO interest charges:
- General interest charge (GIC) — charged on tax or other ATO amounts left unpaid past the date they fell due.
- Shortfall interest charge (SIC) — applied when an amended assessment increases the tax you owe.
The ATO puts it plainly: interest charges it imposes from 1 July 2025 onwards can’t be deducted. The government first flagged the measure in the 2023–24 Mid-Year Economic and Fiscal Outlook in December 2023, and it covers assessments for income years beginning on 1 July 2025 or later. Where an entity uses a substituted accounting period, the deduction disappears from the first such period to begin after that date.
Does it matter which year my tax debt is from?
No, and this catches many owners out. What decides it is the date the charge is incurred; the year of the underlying tax is irrelevant.
| Situation | Deductible? |
|---|---|
| GIC that accrued up to 30 June 2025, on any debt | Yes, in the 2024–25 or earlier income years |
| GIC accruing from 1 July 2025 on a 2022–23 debt | No |
| GIC accruing from 1 July 2025 on a current-year debt | No |
| SIC where the amended assessment notice is served from 1 July 2025 | No |
| Older GIC you claimed, which the ATO then cancels | Add the cancelled amount back to income for the year of the decision |
| Newer GIC the ATO cancels | Nothing to add back — it was never claimed |
Think of GIC as a meter that ticks over daily on whatever remains unpaid — every tick after 30 June 2025 is a cost with no tax offset. SIC lands in one hit, on the day the amended assessment notice is served. So a 2022 debt left on the books today keeps adding charges your return can’t claim.
Why does losing the deduction make an ATO debt so much dearer?
Two features compound each other.
1. GIC compounds daily. The ATO says plainly that GIC compounds daily, and that debts on a payment plan continue to accrue it. A plan stops enforcement escalating, not the charge.
2. There’s no tax offset any more. Previously, a dollar of GIC reduced taxable income, so its after-tax cost was lower than its face value. Now a dollar of GIC costs a full dollar.
The ATO itself put it bluntly in its June 2025 small business update: with GIC no longer deductible from 1 July 2025, small businesses will pay more to carry a tax debt. Its advice was to pay as early as possible and, if on a plan, keep the plan as short as possible.
What does the change look like in dollars?
Illustrative example: A Townsville freight company has carried a $400,000 ATO debt since 2024 on a payment plan. The figures are round illustrative numbers, not the ATO’s actual charge and not tax advice.
| Year | GIC incurred on the debt (illustrative) | Deduction available | Effect |
|---|---|---|---|
| 2024–25 | $40,000 | Yes — reduces taxable income by $40,000 | After-tax cost is lower than $40,000 |
| 2025–26 | $35,000 | None | After-tax cost is the full $35,000 |
| 2026–27, if still unpaid | $25,000 | None | After-tax cost is the full $25,000 |
The balance is coming down, yet what it costs the company after tax has jumped, because none of the post-July 2025 charges can be claimed. Meanwhile, the open debt is blocking a bank refinance the owners need. That is the scenario where paying the ATO out with business finance starts to make sense.
What should you check in your own books?
The change is simple to state but easy to get wrong in practice, particularly where GIC is picked up from your ATO account statements and posted into your accounting software in bulk. A few housekeeping points worth raising with your bookkeeper or accountant:
- Split the ledger at 30 June 2025. Charges incurred up to that date and charges incurred afterwards are treated differently, so they shouldn’t sit in the same expense account.
- Watch the coding. If GIC has been mapped to a general “interest expense” account alongside bank interest, it may flow into the deduction claim by default.
- Track remissions separately. A remission of a pre-July 2025 charge you previously deducted needs to be picked up as income in the year it’s granted.
- Check SIC on amendments. If a review or voluntary disclosure leads to an amended assessment, SIC on a notice served from 1 July 2025 onwards gets no deduction either.
- Re-run your cash flow forecast. Budgets built before the change may assume an after-tax cost of carrying ATO debt that no longer exists.
None of this is complicated, but it changes the real cost of every week the debt stays open, and it’s the figure you need when comparing options.
How are business owners responding?
Broadly, in four ways:
- Paying it out from cash where they can, even if that means delaying other spending.
- Shortening payment plans by lifting instalments, to cut the number of days GIC accrues.
- Applying for remission where there are genuine grounds. The ATO notes support including interest remissions may be available to clients experiencing genuine financial hardship.
- Replacing the ATO debt with business finance. The ATO’s own small business guidance notes that a registered tax professional’s advice may include a business loan, as some interest on loans connected with running a business may be eligible for a tax deduction.
That fourth option is where property-owning businesses have an advantage. A short-term loan secured on property can clear the whole ATO balance at settlement, stopping GIC in its tracks. Our comparison of an ATO payment plan versus a secured loan sets out when each wins.
Is the interest on a property-secured loan deductible instead?
That’s a question for your accountant, because it depends on what the money is used for and who borrows it. The ATO’s guidance on business operating expenses lists interest on money borrowed to produce assessable income, as well as legal expenses for borrowing money and discharging a mortgage, among deductible items. Its rules on borrowing expenses and prepaid amounts affect timing.
What we can say plainly: a loan used for a business purpose is a different animal from GIC. Ask your accountant to compare the after-tax cost of both for your structure before you choose. If the numbers point to paying the ATO out, send a short enquiry about using your property.
Which secured structure suits paying out an ATO debt?
| Your property position | Usual structure | Why |
|---|---|---|
| Debt-free property | Private first mortgage, 1 to 24 months | Clean security; longest available term |
| Bank loan you want to keep | Second mortgage | Bank loan and its pricing stay in place |
| Small amount needed urgently | Caveat loan | Fast to put in place; can convert to a registered second mortgage |
Interest can be prepaid or capitalised, so the business needn’t find monthly repayments while it rebuilds. Our page on second mortgages with bad credit or ATO debt covers how a tax debt is assessed, and pay an ATO debt with property equity walks through the whole process.
How do you compare the true cost of each option?
Put the ATO debt and the loan through the same test:
- ATO side: estimated GIC for the realistic time to pay, with no deduction for anything incurred from 1 July 2025.
- Loan side: interest over the term, the assessment fee shown on the Letter of Offer, legal, registry and discharge costs, then the after-tax effect your accountant confirms.
- Hidden costs: a refinance you can’t get while the ATO debt is open, a credit report listing, or a director penalty notice.
Our guide to the total cost of a short-term loan shows how to add up the loan side properly, and private mortgage costs explained explains each fee.
Key terms at a glance
- GIC: general interest charge on overdue tax and other ATO liabilities, compounding daily.
- SIC: shortfall interest charge on extra tax arising from an amended assessment.
- Incurred: the point you become liable for a charge — the date that decides deductibility.
- Remission: the ATO reducing or cancelling interest charges already applied.
Done paying for the ATO’s money? See if you qualify
If your business owns property and has an ATO debt quietly compounding, it’s worth an honest look at the alternative. Tell us about the property, what’s already owing on it, the ATO balance and how you’d repay a short-term loan.
There’s no credit check to enquire, and your enquiry isn’t passed around a panel of funders — one specialist reads it. Our lending partner fundU assesses the property itself, with no formal valuation required. Accurate details about the property and existing debts mean the first answer is the right one. Find out if your property can pay out the ATO.
Frequently asked questions
Which ATO charges are no longer deductible?
Two of them: the general interest charge (GIC), plus the shortfall interest charge (SIC) that follows an amended assessment. Neither can be claimed against income once it accrues from 1 July 2025 onwards.
My tax debt is from 2023. Is the GIC on it still deductible?
Only the portion that built up before 1 July 2025, claimable in 2024–25 or an earlier income year. Per the ATO, any GIC accruing from that date onwards gets no deduction, however old the tax debt behind it.
When is GIC or SIC 'incurred'?
At the moment the liability arises. GIC builds up a little every day an amount stays unpaid, so each day adds a fresh, non-deductible slice. SIC is different: it attaches on the date the amended assessment notice reaches you.
What if the ATO remits some of my interest charges?
It depends which side of 1 July 2025 the charge sits. A post-June 2025 charge was never deductible, so getting it back costs you no tax. An older charge you already claimed is different: the part the ATO later cancels is added back to your income for the year the decision comes through.
Is it worth borrowing to pay the ATO now?
It can be. The ATO's own small business guidance notes that a registered tax professional's advice may include a business loan, as some interest on loans connected with running a business may be deductible. Whether it suits you depends on the debt size, the after-tax cost of each option and your exit.