The Australian Taxation Office (ATO) is reminding individuals and businesses that from 1 July 2025, interest charged on unpaid or underpaid tax debts will no longer be tax deductible.
This change is part of the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, which is now law. From that date, general interest charges (GIC) applied by the ATO will not be deductible, even if the debt relates to a previous income year.
What’s Changing?
Currently, interest charges imposed by the ATO for late payments can be claimed as a tax deduction. However, any GIC incurred on or after 1 July 2025 will no longer be deductible—regardless of when the original tax debt arose.
ATO interest is applied similarly to commercial loan interest—on overdue amounts or shortfalls caused by amendments. This change ensures that taxpayers who pay on time are not unfairly disadvantaged compared to those who delay payment.
Why This Matters
ATO Assistant Commissioner Anita Challen emphasised the importance of meeting tax obligations promptly:
“These changes will make it more expensive to carry a tax debt. The current ATO interest rate is 11.17% and compounds daily—meaning delays come at a real cost.”
“If you’ve been putting off a payment, now is the time to act.”
How to Prepare
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Pay on time: Avoid interest by paying your tax liabilities when due.
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Set aside funds: Keep GST, PAYG withholding, and super contributions in a separate account to stay prepared.
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Use payment plans: If full payment isn’t possible, set up a plan via ATO online services or through your tax agent. While interest still accrues, it reduces as you make payments.
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Explore financing options: In some cases, third-party finance may have a lower interest rate. Speak with your accountant or financial adviser about alternatives.
Key Notes
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Interest incurred before 1 July 2025 is still deductible and will be pre-filled in your tax return if you lodge via myTax.
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Remission of GIC remains available where appropriate—but requests are thoroughly assessed.
If you’re experiencing financial difficulty or need help managing your tax position, it’s best to contact your registered tax professional early or explore the support tools available on the ATO website.
